Public Transport Development Authority and Civic Nexus Pty Ltd

PTDA & Civic Nexus Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2016] VCAT 1457

1. Pursuant to s 25(1) of the Valuation of Land Act 1960 (Vic), the Tribunal reduces the site value of the land known as, 'Miscellaneous Site', 93-225 Spencer Street, Docklands VIC 3008 (Land ID 40258255) to the values set out in the table below:

Mr J Delany QC with Dr B Gauntlett of Counsel instructed by Minter Ellison

SRO division of four assessment parcels of Crown Allotment 2084

Assessment of Site Value by Valuer General for 2006, 2008, 2010 and 2012

August 2013 - Commissioner of State Revenue reduced values

Commissioner of State Revenue contention of higher levels of site value

Eight components of Southern Cross Station as described by Mr Richard Bowman

Summary of adopted land values for the station site

Site value for the larger property (including Adderley Street access) but excluding the rail lines and rail yards

Mr Bowman's table - EAV assessment for the subject land as at 1 January 2012 - Component A

Mr Torr's calculations - EAV as at 1 January 2012 for the station site and the bus site

Mr Torr's rates used in each of the revaluation cycles

EAV assessment for the subject land for years 2008, 2010 and 2012.

Mr Brown's revenue figures and rents at the respective revaluation years

Component B & C - Combined EAV assessment - Southern Cross Retail

Component E - EAV - Car park - second income and expenses

Mr Brown adopted rents at the revaluation years 2008, 2010 and 2012

664 Collins Street Pad site - EAV for years 2008, 2010 and 2012

Conclusion - Site value of subject land at years 2010, 2012 and 2013

1. This is a dispute as to the site value of a property known as the Miscellaneous Site, located at 93-225 Spencer Street, Melbourne ('the subject land'). The subject land forms part of the Southern Cross Station ('the station site'). The subject land is owned by the Public Transport Development Authority ('PTDA') and leased to Civic Nexus Pty Ltd ('Civic Nexus').[1]
2. The subject land is largely contained within Crown Allotment 2084, City of Melbourne, Parish of Melbourne North.[2] Crown Allotment 2084 is divided into four assessment parcels by the State Revenue Office:[3]

All retail areas undercover in the Southern Cross Station site

A portion of the car park on the mezzanine level that forms part of the land leased by Civic Nexus

Open Space, train platforms, office pods, ticketing windows and any other land relating to the balance of the Civic Nexus lease[4]

1. In September 2012, the Valuer-General provided assessments of the site value of the subject land as at 1 January 2006, 2008, 2010 and 2012. They were:[5]

1. The assessments were carried out by Matthew Webb of Valuer-General Victoria on 24 September 2012. Mr Webb undertook his assessment on the basis that the subject land formed part of a larger property.
2. On 19 December 2012, the Commissioner of State Revenue ('the Commissioner') issued land tax assessments to Civic Nexus for the 2010, 2011 and 2012 years.
3. In February 2013, Civic Nexus filed an objection to each tax assessment, contending that the subject land should have been assessed with the following site values:[6]

1. On 8 February 2013, the Commissioner issued a land tax assessment for the 2013 land tax year. The Commissioner relied upon Mr Webb's site value assessment of $15,400,000.[7]
2. PTDA objected to the 2013 assessment, stating:

The relevant site is defined by the SRO as open space, train platforms, office pods, ticketing windows and any other land relating to the balance of the Civic Nexus lease located at Southern Cross station. The site is zoned mostly CCZ1 and partly PUZ4. It is situated on the corner of Collins and Spencer Streets and is used as open plaza for the movement of people to and from the rail platforms, particularly during peak commuter periods. The subject Site is limited in height and depth. Its current use also represents the Highest and Best use of the land. The relevant site has very little potential to generate revenue income due to its requirement to be a plaza for the movement of commuters in accordance with the existing lease and services agreement with the State.[8]

1. PTDA contended that the site value of the subject land should have been assessed as $1,000,000.[9] On 10 May 2013, it amended its position, contending that the subject land ought to have been given a site value of $nil.[10]
2. In August 2013, the Commissioner issued reduced site values for the subject land:[11]

1. The dispute was referred to the Tribunal by the Commissioner, at the request of PTDA and Civic Nexus.[12] Following the preparation of expert reports, the Commissioner now contends for the following higher levels of site value:[13]

1. With four land tax assessments under review, there are 3 revaluation cycles (2008, 2010 and 2012). Market conditions stand to be assessed at the following relevant dates:
   • 1 January 2008 (2008 Revaluation, 2009 and 2010 Land Tax Assessments)
   • 1 January 2010 (2010 Revaluation, 2011 and 2012 Land Tax Assessments)
   • 1 January 2012 (2012 Revaluation, 2013 and 2014 Land Tax Assessments)

1. Over the period from 2002 to 2006, the former Spencer Street railway station was redeveloped as Southern Cross Station. Redevelopment took place under a Services and Development Agreement between the SSSA and Civic Nexus, which commenced on 27 August 2002. The agreement was varied on 30 September 2009 ('the PPP Agreement').[14] The PPP Agreement is for a term of 30 years, and followed a competitive tender process.[15]
2. On 30 July 2006, SCSA and Civic Nexus entered into a lease for the parts of the land comprising Crown Allotments 2083 and 2084 on Plan of Subdivision 623491D ('the facility lease').[16] The land demised by the facility lease is defined in a survey plan prepared by Madigan Surveying dated 18 November 2009 ('the demised land'). The demised land includes the subject land.

1. PTDA and Civic Nexus rely on witness statements and evidence from Ludovic Magic, Chief Financial Officer, and Colin Chanter, Chief Executive Officer, of AssetCo Management Pty Ltd ('AssetCo').[17] Both AssetCo and Civic Nexus are subsidiaries of IFM Infrastructure Funds ('IFM'). Mr Chanter is also the Chief Executive Officer of Civic Nexus. PTDA and Civic Nexus rely on the expert reports and evidence of Richard Bowman and Les Brown, valuers.[18]
2. The Commissioner relies on expert reports and evidence of Chris Torr, valuer, and Piera Murone, chartered accountant.[19] Mr Webb did not give evidence.
3. The qualifications of the expert witnesses were not in dispute.
4. The Tribunal undertook an accompanied site inspection on 22 February 2016, and an unaccompanied CBD and fringe sales evidence site inspection on 8 March 2016.
5. In proceedings such as the present, there is no onus of proof. Rather the burden lies on each party to establish the accuracy of its own valuation.[20]

1. Land tax is imposed each year on all taxable land in Victoria.[21] The owner of land is liable to pay land tax.[22] It is common ground that Civic Nexus is treated as the owner of the subject land.[23]
2. 'Land' is defined in s 38 of the Interpretation of Legislation Act 1984 (Vic) to include 'buildings and other structures permanently affixed to land, land covered with water, and any estate, interest, easement, servitude, privilege or right in or over land'.
3. 'Taxable land' is defined to mean land that is not 'exempt land'.[24] It is common ground that the subject land is not exempt from land tax, as it is leased or occupied for business purposes by Civic Nexus.[25]
4. Land tax is assessed on the basis of the taxable value of the subject land.[26] The taxable value of land is an amount equal to the site value of the land as at the relevant date.[27] The term 'site value' in the LT Act has the same meaning as in the Valuation of Land Act 1960 (Vic) ('the VL Act').[28] General valuations are conducted in Victoria in every even calendar year.[29]
5. 'Site value' is defined in the VL Act to mean:

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;[30]

improvements, for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but, except as provided in subsection (2AA), does not include -

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(i) the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or through the land -

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation.[31]

1. Section 2(2) prescribes the method for determining the value of improvements:

In estimating the value of improvements on any land for the purpose of ascertaining the site value of the land, the value of the improvements is the sum by which the improvements upon the land are estimated to increase its value if offered for sale on such reasonable terms and conditions as a genuine seller might in ordinary circumstances be expected to require.

1. Section 2(3) provides the mechanism for assessing the site value of land which forms part of a larger property:

If it is necessary to determine the capital improved value or site value of any rateable land in respect of which any person is liable to be rated, but which forms part of a larger property, the capital improved value and site value of each part are as nearly as practicable the sum which bears the same proportion to the capital improved value and site value of the whole property as the estimated annual value of the portion bears to the estimated annual value of the whole property.

1. 'Estimated annual value' ('EAV') is defined to mean:

... the rent at which the land might reasonably be expected to be let from year to year (free of all usual tenants' rates and taxes) less -

(a) the probable annual average cost of insurance and other expenses (if any) necessary to maintain the land in a state to command that rent (but not including the cost of rates and charges under the Local Government Act 1989); and

(b) the land tax that would be payable if that land was the only land its owner owned;[32]

1. Section 5A directs how the valuation of land is to be undertaken:

(1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

(2) In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account -

(a) the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;

(c) the shape size topography soil quality situation and aspect of the land;

(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e) the extent condition and suitability of any improvements on the land; and

(f) the actual and potential capacity of the land to yield a monetary return.

1. Section 13DC contains a number of provisions governing how land is to be valued:

(6) If several parcels of land in the same municipal district are occupied by the same person and separated from each other only by a road or railway or other similar area across or around which movement is reasonably possible, the parcels must be regarded as together forming rateable land and valued accordingly.

(7) If any person is liable to be rated in respect of 2 or more unoccupied parcels of land in the same municipal district and the parcels form one continuous area, the parcels must be regarded as together forming rateable land and valued accordingly.

(7A) If a portion of a parcel of land on which a building is erected is occupied separately, or is obviously adapted to being occupied separately, from other land in the parcel, that portion must be regarded as forming a separate rateable property and must be valued accordingly.

(9) If land comprising one undertaking extends continuously beyond the boundaries of any municipal district the value, for the purposes of any rate, of so much of the land as is within any one municipal district, must be assessed as part of the value of the whole of the land.[33]

1. As set out above, s 13DC(9) deals with the valuation of land comprising one undertaking that extends continuously beyond the boundaries of a municipal district. Railway undertakings typically extend continuously beyond the boundaries of one municipality. Where they are taxable land, they are accordingly subject to assessment under s 13DC(9).

Construction of Southern Cross Railway Station

1. Under the PPP Agreement, 'The Project' is defined to mean:

the project for the design, construction, commissioning, finance, lease, operation and maintenance of a new intermodal transport interchange facility at Southern Cross Station, the redevelopment of the existing Southern Cross Station site and associated rail infrastructure and signalling works, in accordance with the Project Agreements.[34]

1. There are a number of agreements that constitute the project agreements ('the Project Agreements').[35]
2. Under the terms of the PPP Agreement:

(1) Civic Nexus must design, construct, commission, lease, operate and maintain the Interchange Facility,[36] and the Interchange Facility Works (excluding the lease, operation and maintenance of the Rail Modifications and Signalling Upgrade) in accordance with the PPP Agreement and the other Project Agreements;[37] and

(2) SSSA agreed to pay the Core Services Payments, set-off, deducted or abated if Civic Nexus failed to meet key performance indicators set in the PPP Agreement.[38]

1. Under cl 2.2 of the PPP Agreement, Civic Nexus accepted all risks relating to the Project, including:
   • (1) the actual cost of the Project being greater than estimated;
   • (2) the passenger use of the Interchange Facility being other than estimated;
   • (3) the Interchange Facility not being economically viable; and
   • (4) the revenue generated from the Interchange Facility being less than estimated.

1. The facility lease commenced on 1 August 2006, and is for a term of 30 years at a nominal rent of $10. Under the facility lease, Civic Nexus leased the land described in the survey plan prepared by Madigan Surveying.[39] The facility lease was amended by a Deed of Amendment and Reinstatement dated 12 May 2011. The facility lease terminates on the termination or expiry of the PPP Agreement, but cannot otherwise be terminated.[40]
2. The facility lease requires Civic Nexus to use the demised land only for purposes permitted under the PPP Agreement.[41] Civic Nexus must maintain the demised land and the interchange facility in accordance with its obligations under the PPP Agreement.[42]
3. Plans attached to the facility lease define the vertical building envelope of the demised land:
   • (1) platform lease areas are restricted in height to the top surface of the station roof;
   • (2) platform lease areas north of the Bourke Street bridge are restricted in height to 7.1 metres above the top of the adjacent rails;
   • (3) the platform lease area south of Collins Street bridge (Platform 8 south) is restricted to 5.4 metres above the top of the adjacent rails;
   • (4) lease areas for Platforms 13 to 16 are restricted to the soffit of the 664 Collins Street slab; and
   • (5) the demised land is limited in depth to various levels.[43]
4. Mr Bowman conveniently described the Southern Cross Station as comprising eight components. They are listed in the table below:[44]

Open Space, train platforms, office pods, ticketing windows, Bus Interchange Facility ("BIF"), Bus Access Road and any other land relating to the balance of the Civic Nexus lease.

Open Space, pedestrian access areas, train platforms, mezzanine and level 1 pedestrian concourse and the Bourke Street pedestrian concourse, office pods, ticketing windows, toilets, passenger lounges, lockers, back of house rooms. This can be otherwise described as areas critical to the operation of the station and the movement of passengers through the station.

The BIF is located on the ground level in the northern station precinct. The BIF comprises 17 regional bus bays, 6 secondary bus bays, 2 full size 'Sky Bus' bays and 3 mini 'Sky Bus' bays.

The access road is for bus access to the BIF and has an access point to the north of the Southern Cross Station Building form [sic]Adderley Street, passing under La Trobe Street into the BIF.

All retail areas undercover in the Southern Cross Station site. (excluding the retail area with frontage to Spencer Street)

Level 1 comprises 11 retail tenants including Red Rooster, Sumo Salad, Vodafone, Hungry Jacks, WH Smith.

The sole tenant on the mezzanine level is Woolworths.

The Ground Level comprises 21 retail tenancies including WH Smith, Grill'd, Boost Juice, Red Rooster, In a Rush Café and Degani Bakery.

The Bourke Street Pedestrian Bridge comprises 4 retail tenancies.

Comprises 14 retail tenancies with frontage to Spencer Street including Pie Face, Hungry Jacks, 7 Eleven, TAB, Subway, Europcar, Budget and Avis.

A two level retail centre located in the northern station precinct that comprises approximately 101 retail tenancies including speciality stores, food outlets and a Coles Supermarket on the ground level.

Located in the northern station precinct on the mezzanine level, the car park comprises approximately 800 car parks, currently operated by Wilson under a sub-lease agreement with Civic Nexus.

A suspended concrete slab with development potential for an 11 storey office building with a Gross Floor Area approximately 45,918sqm with an approximate pad site area of 7,691 sqm ^

The Incorporated Document allows for the construction of an approximately 12 level hotel. A platform or 'pad' would need to be constructed in order to accommodate this development.

The Incorporated Document allows for the construction of an approximately 28 level residential apartment building with car parking. A platform or 'pad' would need to be constructed in order to accommodate this development.

1. Schedule 1 to these reasons is the aerial photograph provided by Mr Bowman.[45] It illustrates the eight components of the station. Of the eight components, six are constructed properties. The last two are yet to be constructed.
2. The subject land is an irregular shape, both on the ground and in the air. It comprises basement, ground level, mezzanine, first floor level and roof areas containing train and bus stations, concourse, office and other miscellaneous areas of the station. It includes long 'fingers', comprising the platforms at ground level, which are adjacent to rail lines, and improvements such as an open plaza and forecourt which provide pedestrian access between trains and buses, Spencer and Collins Streets. It also includes the access road to Adderley Street.

1. At all relevant times, the subject land has been included in the Capital City Zone 1 under cl 37.04 and sch 1 to cl 37.04 of the Melbourne Planning Scheme ('Scheme'). The use and development of the subject land is governed by a document entitled Spencer Street Station redevelopment, August 2007 ('Incorporated Document') and Incorporated Plans.[46] The effect of incorporation is to include the Incorporated Document and Incorporated Plans in the Scheme.
2. The Incorporated Document contains important provisions which fundamentally affect the use and development of the subject land. It applies to land within the Spencer Street Station Precinct generally bounded by Spencer Street, Collins Street, Wurundjeri Way and La Trobe Street (excluding the Melbourne City Mail Centre) ('the precinct').
3. The Incorporated Document provides for the demolition and removal of existing buildings and works, and for the use and development of land in the precinct for specified uses including as a transport terminal, railway, place of assembly, accommodation, office, retail premises (other than adult sex bookshop), minor utility installation, ancillary car parking, public car park and advertising signage generally.
4. The use and development of the precinct is defined by the Incorporated Plans and is subject to significant conditions:
   1. The use and development of the land may be undertaken in separate stages with the first stage being the Transport terminal.
   2. The Transport terminal must be constructed generally in accordance with the Incorporated Plans and in accordance with the [PPP Agreement].

1. Prior to the commencement of each stage of the development (excluding the Transport terminal) and excluding demolition and bulk excavation works, scaled Detailed Design Plans must be submitted to and be to the satisfaction of the Responsible Authority. The Detailed Design Plans must be generally in accordance with the Incorporated Plans and must show:

4.1. Detailed architectural, elevations and section plans drawn to scale and dimensioned (including Reduced Level's), indicating location, height, design, use and floor area of all buildings and works including:

• The design detail and revisions of the roof structure above 'Upper Concourse Level -F1-04 plan', west-end retail to ensure a distinctive and coherent architectural profile that is consistent with the image of the Station Precinct;
• The design detail of the Collins - Bourke Streets link pedestrian bridge to ensure consistent uninterrupted minimum width of 5 metres and 24hour public access;
• The design detail of the Lonsdale Street pedestrian bridge, its interface to the west end retail and Stadium concourse and connection to ground level to ensure there are no congestion points including uninterrupted width of through links and stairs;
• The detail design of all canopies, projections, wind mitigation devices and weather protection awnings.
• The north elevation of the hotel building and the south elevation of the residential tower building to be aligned with the established building line of Lonsdale Street.

4.2. The design detail and revisions of all ground floor and street façade podium level elevations indicating uses, at a scale of 1:200 in order to ensure:

4.2.1. active street frontages, diverse building and architectural elements with a rhythm and appropriate scale to the street proportions, integrated signage and external lighting;

4.2.2. architectural design feature at the termination vista of Little Bourke and Lonsdale Streets

4.2.3. that high quality pedestrian amenity and safety at all interfaces with the development is established and maintained.

When approved the Detailed Design Plans shall be endorsed by the Responsible Authority.

1. When approved, the plans, schedules, details and reports referred to in the following conditions shall form part of the Detailed Design Plans. The use and development of any land or building shall be carried out in accordance with the Detailed Design Plans. The Detailed Design Plans must not be altered or modified in any way without the prior consent of the Responsible Authority.

1. Prior to the commencement of the use, details of the management of the internal public spaces and 'streets', designed to ensure that they remain open to full public access during the operational opening hours of Spencer Street transport facility, must be submitted to and be to the satisfaction of the Responsible Authority.
2. The Bourke Street pedestrian bridge will remain open to full public access 24hours each day of the year.
3. The existing Bourke Street pedestrian bridge urban design element of red metal ribs and weather protection awning must be salvaged and re-used as part of the future construction of the Lonsdale Street pedestrian bridge, or otherwise to the satisfaction of the Responsible Authority.

1. Prior to the commencement of the public car park use, a detailed Car Parking Management Plan must be prepared and be to the satisfaction of the Responsible Authority. The plan must show:
   • A maximum of 800 on-site public car spaces; and
   • At least 25% of these spaces to be set aside and operated as short stay parking.
   • The short stay places must be located convenient to the car park entry/exits and must be clearly sign posted and delineated as being available for short stay parking only.[47]
2. The Incorporated Document was incorporated into the Scheme by Amendment C70. The Explanatory Report to Amendment C70 ('the explanatory report') describes the social and economic effects of Amendment C70:

The redevelopment and transformation of Spencer Street Station into a world class transport interchange and landmark for Melbourne, will enhance, revitalise and promote the western section of Melbourne's CBD and provide direct links to Docklands. The incorporation of the design scheme for the Spencer Street Station redevelopment has significant social and economic implications including, but not limited to:

• The proposal reinforces the transport role of the Spencer Street Station precinct and introduces complimentary and appropriate land uses within the precinct to support the development.
• The construction of the new transport interchange (and associated track and signalling works) will involve approximately a $350 million dollar investment and will have substantial positive flow-on effects for the Victorian economy.
• The new residential and commercial buildings, combined with the new transport interchange will generate construction activity worth about $700 million and create approximately 4,400 jobs during construction and 2,200 permanent jobs.
• The construction of the station will start by September 2002 and be completed by mid-2005, in time for the 2006 Commonwealth Games to be hosted in Melbourne. In turn this facility will raise the image and improve the operation of the western edge of the CBD at this time and beyond.
• On average the station attracts 55,000 commuters per day, 15 million a year. The new design provides capacity for future growth and travel demand to benefit 45 million passengers a year.

• The proposal reinforces the capital city role of Melbourne's CBD and is consistent with the Economic Development objectives of the State Planning Policy Framework.
• The proposal will provide a dynamic and attractive gateway to the Docklands through the provision of walkways, improved street frontages, improved surveillance and safety to public spaces.[48]

1. The strategic and policy justification for Amendment C70 is stated in the explanatory report:

The redevelopment of Spencer Street Station forms part of the States Linking Victoria initiative which was launched on 28 February 2000 to provide a blueprint for generating over $1.5 billion of rail infrastructure. In addition to the Spencer Street Station redevelopment, this initiative includes the Regional Fast Rail project, a program of gauge standardization and the reopening of several country rail lines.

Furthermore, the Spencer Street Station redevelopment has been undertaken within the framework of the State's Partnerships Victoria policy.[49]

1. The Scheme as amended by Amendment C70 was subsequently further amended by Amendments C130 and C218. Amendment C218 modified a previous requirement to provide a 24 hour consistent uninterrupted 5m wide public access link through the station building. A link of an average of 5m width during the operating hours of the building is now required.
2. The precinct is affected by numerous planning controls and overlays.[50]

1. The definition of site value in s 2(1) of the VL Act requires the assessment of land value on the basis that the land is held in an estate in fee simple and offered for sale on an unimproved basis. This involves disregarding improvements on the land unless those improvements are crown improvements or are to be taken into account under the statutory definition of 'improvements'. In broad terms, site value is defined as what may be considered as the market value of an unencumbered estate in fee simple assuming no improvements had been made.[51] In assessing 'site value', all possible purchasers of the vacant land are taken into account.[52]
2. In assessing site value, land is assumed to be cleared of buildings but situated in the community with the amenities and facilities which have grown up around it.[53] The definition of 'site value' envisages a hypothetical sale of the land to be valued. The sale is on the open market, and the highest price reasonably attainable is in contemplation.[54]
3. The hypothetical sale in an open market envisaged by the definition of site value attracts the well-known test in Spencer v Commonwealth.[55] That is, the site value must be determined by asking what price for the land might reasonably be arrived at by a willing, but not anxious, buyer negotiating with a willing, but not anxious, seller. Both buyer and seller are assumed to be perfectly acquainted with the land and cognisant of all circumstances which might affect its value. The circumstances with which both buyer and seller are perfectly acquainted extend to all material uses of the land, development and commercial circumstances that affect the land and the surrounding land.
4. Site value is determined having regard to all of the considerations set out in s 5A of the VL Act, including the highest and best use of the land, the effect of laws and instruments which affect use or development, its shape, size, topography, soil quality, position and aspect, its situation having regard to natural resources and transport, and its actual and potential liability to derive a monetary return from its unimproved state. This includes its capacity to derive returns from prospective or possible development.[56]
5. The parties agree that the highest and best use of the subject land is as part of an intermodal transport interchange facility. This is the existing use.
6. The pivotal location of the station site is also undisputed. It lies at an important transport hub of national, regional, metropolitan, and underground rail networks.[57] If the station did not exist, it would be required to be re-established.[58]

Image 1: Southern Cross Station - Collins and Spencer Streets Corner[59]**

1. The crucial issue that arises in this case is how to determine the site value of land required to be used and developed as a major public facility. The valuers retained by PTDA and Civic Nexus say that the use of the subject land is not commercially viable and therefore that a nil site value should result. They have considered the revenues generated by the uses within the station, the ongoing cost and expense of operating the station; particularly the costs and expenses relating to public areas, and the high building costs associated with the iconic design and development of the station under the Incorporated Document. They conclude that the station will never be viable in private hands without the support of the State Government.
2. By contrast, the Commissioner says that the proposition that the subject land has a nil site value is absurd. No vendor would give the site away for a nil value. According to the Commissioner, it would be bizarre if a large gateway site on the edge of the Melbourne CBD were given a nil site value.
3. The task of valuing public asset sites for rating or land tax purposes is not new. The station is a major public facility. Its highest and best use is for a public purpose. The station can be described as a social infrastructure asset, as are hospitals, schools, police stations, prisons and libraries which can also be funded under a PPP agreement.[60]
4. The synchrotron near Monash University in Clayton is an example of a public facility, with the specialist purpose of scientific research. A developer of this facility would require an economic rent from the State for the construction and operation of the facility. Equally, the State as hypothetical tenant would need to be willing to pay a level of rental to the hypothetical developer and owner that would permit the project to proceed. The rental value that the State would have to pay might have no relationship to the revenue that the State would expect to derive from the use of the facility. Rather, the rental would reflect the amount the State was prepared to pay to have a research facility of the standing, quality and utility of the synchrotron located near to the university.
5. For many decades, the leading decision in Australia dealing with the valuation of land to be used and developed for a public purpose has been the Privy Council decision in Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officers Vizagapatam.[61] Discussing the situation where there was only one possible purchaser capable of utilising the potentiality of land, Lord Romer said:

Upon the question of the value of the potentiality where there is only one possible purchaser, there are some authorities to which their Lordships will have to refer. But dealing with the matter apart from authority it would seem that the value should be the sum which the arbitrator estimates a willing purchaser will pay and not what a purchaser will pay under compulsion. It was contended on behalf of the respondent that, at an auction where there is only one possible purchaser of the potentiality, the bidding will only rise above the "poramboke" value sufficiently to enable the land to be knocked down to that purchaser. But if the potentiality is of value to the vendor if there happen to be two or more possible purchasers of it, it is difficult to see why he should be willing to part with it for nothing merely because there is only one purchaser. To compel him to do so is to treat him as a vendor parting with his land under compulsion and not as a willing vendor. The fact is that the only possible purchaser of a potentiality is usually quite willing to pay for it.[62]

For these reasons, their Lordships have come to the conclusion that, even where the only possible purchaser of the land's potentiality is the authority that has obtained the compulsory powers, the arbitrator in awarding compensation must ascertain to the best of his ability the price that would be paid by a willing purchaser to a willing vendor of the land with its potentiality in the same way that he would ascertain it in a case where there are several possible purchasers and that he is no more confined to awarding the land's "poramboke" value in the former case than he is in the latter.[63]

1. It is entirely true, as PTDA and Civic Nexus submit, that the Raja principle is not in any way a departure from the familiar Spencer test.[64] But the Raja principle highlights that it is wrong to assume that because a proposed development is not viable from an economic or commercial standpoint that it has no value, or that the State would pay nothing for the acquisition of land dedicated for public purposes. On this view, sites reserved for social infrastructure assets, such as hospitals, schools, police stations, prisons and libraries would have no value. As the Commissioner rightly submitted, such a result would be absurd.
2. The valuation of land to be acquired for a public park is one example of the valuation of land reserved for public purposes. In City of Brighton v Road Construction Authority,[65] Gobbo J applied the reasoning of the Privy Council in Raja and held that a public park had a market value even though a municipality was the only likely purchaser of the acquired land. The municipality's demand for the land, coupled with the cost of acquiring alternative land, resulted in a market value for land that could not generate a profit. In an important passage in this context, Gobbo J said:

The claimant contended that as the municipality was the only possible buyer for land reserved as parkland, then there could not be a market or a market value. As for the acquiring authority, it contended that land so restricted was worth very much less than land zoned for residential purposes. It was said that this was so even if the land had itself been purchased, at residential values, by the municipality which then itself imposed the parkland reservation upon the land.

In my view there are fallacies in both approaches. It is altogether too narrow a view of market value to see it as being ascertainable only where there is more than one person interested. There are many instances where the land is zoned or reserved for a purpose that restricts its effective appeal to one category of purchaser but that does not mean that that category of purchaser necessarily puts a peculiarly low value on the land. A control that poses a heavy restriction for one may confer a benefit for another. Thus land reserved for a special purpose such as, for example, a gasworks will be seen as having a massive restriction for the vast majority of potential purchasers but it must also be seen as having a valuable benefit for the gas company, which is limited in its choice of appropriately designated lands.

This approach is in my view supported by those statements of principle that confirm that the fact that there is only one possible buyer of a property does not mean that the owner is obliged to assume that there is only one nominal bid at a hypothetical auction of his land. This is illustrated by the discussion in Raja.[66]

Where a parcel of land is set aside for parkland use, its value will be related to the price that a purchaser of parkland will be prepared to pay, given that such purchaser will be using the land for that which constitutes for it the highest and best use of the land. It will also be related to what that purchaser would have to pay - assuming reasonable opportunity and not compulsion to effect a purchase - --if it were to purchase other land that might equally meet its purpose. Such purchase of other land may lead it to have to pay the equivalent of residential values.

The fact that emerges very clearly is that municipalities, especially those like the claimant in developed areas, cannot purchase land appropriately zoned for parkland purposes. They are obliged to buy residential land, at or near residential values, when they wish to secure parkland.

The authority's valuers argued that where a municipality bought residential land for parkland purposes and then had imposed on the land a reservation for public open space, its value was immediately reduced. It is difficult to understand why this is so, for the municipality is the main factor in the market for parkland. It will clearly be prepared to pay the original price it paid for the very good reason that, if it did not buy this land at that price, it would be compelled to pay that price for residential land, there being no parkland so zoned available for sale.[67]

1. Gobbo J's reasoning has been followed in later cases to value land to be acquired for public use which also cannot generate a profit.[68]
2. In considering the hypothetical sale of the station site, the pivotal importance of the station site to the State and the people of Victoria who daily use the station is a very strong imperative for the State of Victoria to purchase the station site at the hypothetical Spencer auction. In the hypothetical circumstance that the State or an instrumentality of the State did not own or purchase the station site, it would immediately move to compulsorily acquire the site, or negotiate with the owner to ensure that the site would operate as a major station and intermodal transport facility. This would inevitably mean a long term tenancy or a commercial agreement for the construction and operation of a station in the long term.
3. As the Privy Council said in Raja, attending any hypothetical auction, there may be poramboke bidders. They may seek to acquire the station site for later resale to the State at a profit. Alternatively, they may seek to use ownership of the station site as a commercial lever to obtain an agreement with the State for the development of the station site. Given the importance of the station site to Victoria, the State would inevitably agree to and negotiate to secure a vital infrastructure property.

1. In assessing the site value of the station site, or the rentals that may be payable in relation to the public properties that constitute the station, it is fundamental to consider the State in the capacity of a hypothetical purchaser, or tenant. This involves much more than assessing the commercial components of the station site, or considering rentals payable by the shops, offices and other commercial facilities that form part of the station. The valuer must consider what the State would pay as a hypothetical purchaser or hypothetical tenant willing but not anxious to obtain the station site. The State would also be willing to meet the probable annual costs of insurance and other expenses necessary to maintain the land to command rental for the station as an essential public facility which the State must keep open to the public.[69]
2. After identifying the subject land, s 2(3) of the VL Act requires a number of steps to be undertaken to assess site value. It is convenient to address the steps in the following sequence:

(2) determine the site value of the larger property (or properties);

(4) determine the EAV of the other properties which together with the subject land constitute the larger property (or properties); and

(5) determine the site value of the subject land as the sum which bears the same proportion to the site value of the larger property (or properties) as the EAV of the subject land bears to the estimated annual value of the larger property.

1. There are important purposes underlying s 2(3). The first is that s 2(3) achieves fairness to the owners and occupants of properties forming part of a larger property. The value of their properties is not assessed in isolation, but as part of the value of the larger property of which the occupancies form part. Thus, the site value of each individual property is constrained to its proper share of the site value of the larger property determined by the proportion that the EAV of the individual occupancy bears to the EAV of the larger property. Secondly, the apportionment process achieves certainty. Each owner of an individual occupancy forming part of a larger property can determine what share of the tax applicable to the larger property is to be borne by the individual occupancy. Thirdly, and most importantly, by using EAV as the basis for apportionment, the legislature seeks to achieve equity in payment of land tax amongst the various occupancies forming part of the larger property. This is done by apportioning the land tax payable on the site value of the larger property amongst the owners of each individual occupancy forming part of the larger property in accordance with the income earning potential of that occupancy. EAV is a convenient proxy for income earning potential. Thus, if a small part of a larger property is used for retail, and most of the property is vacant land (unless separately assessed), the land used for retailing will bear the brunt of the tax imposed on the larger property rather than the more extensive area of vacant land, which may have little or no actual income earning potential.
2. In the present case, the effect of the legislative scheme underlying s 2(3) is to put more of the burden of land tax onto the retail properties within the station and less on the other properties within the station.

Identification of the larger property or properties

1. Section 2(3) of the VL Act governs the determination of site value where the subject land 'forms part of a larger property'. However, no specific guidance is given as to when a property forms part of a larger property, or as to how the extent of the larger property is to be determined. This assessment is left to the valuer undertaking the valuation. In the event of a dispute, it is for the Court or Tribunal to identify the larger property and determine its extent as a matter of fact.
2. The valuers for the parties in this proceeding agree that s 2(3) of the VL Act is engaged, but disagree as to whether there is one or two larger properties.

1. Mr Bowman considered that there was one larger property. This he took to be the whole of the station site as described in the Incorporated Document.[70]
2. Mr Brown considered that there was one larger property. This he took to be the station site described in Lot 2084A on Plan of Subdivision 623491 and in Certificate of Title Volume 11093 Folio 657.[71] The land thus described had an area of 147,000m2, including the rail lines and rail yards.
3. Mr Torr initially accepted that there was one larger property, being the whole of the station site including rail transport related areas, retail premises, shopping centre and bus terminal. Later, he changed his view. He split the station site into two larger properties, which he described as the train site and the bus site.[72] The areas of the two larger properties are summarised in the following tables:

1. Mr Torr calculated the ground floor footprint of the subject land at 63,214m2, with a total floor area of 77,977m2.[73] Most of the rest of the land in Lot 2084A consists of rails and rail yards, and was excluded from the two larger properties.
2. Mr Torr's two larger properties total 59,934m2 in area. There is a discrepancy of over 3,000m2 between the ground floor footprint of the subject land of 63,214m2 and the combined total area of the suggested two larger properties.

1. In Port of Melbourne Corporation v Melbourne City Council,[74] Emerton J considered whether the Port of Melbourne was a larger property for the purpose of determining the site value of various occupancies at the port. Her Honour found that the Port of Melbourne land was planned, managed, operated and used as a larger property, and that the occupancies formed part of this larger property. It was not necessary that the occupancies be 'inseparably interdependent' like units in a block of flats.[75]
2. Further, Emerton J found that the highest and best use of the Port of Melbourne land was as a port, and the Port of Melbourne land would be sold in the market place as one property and operated as a port.[76] To value the port as a series of disaggregated parcels of land would be to lose sight of one of the most important determinants of the value of the port occupancies at the relevant date, which was that they formed part of the port.[77]

1. I accept the opinions of all three valuers that there is a larger property for the purposes of s 2(3) of the VL Act. I find that the one larger property is the station site. This was the opinion of Mr Bowman, Mr Brown, and Mr Torr in their valuation reviews. I reject Mr Torr's later view that there are two larger properties.
2. I find that the station site is the one larger property of the subject land for the following reasons:

(1) the use and development of the subject land and the station site as a whole are governed by the same planning controls and the same Incorporated Document and Incorporated Plans;

(2) the highest and best use of the station site including the subject land is as an intermodal transport facility;

(3) the station site, including the subject land, form part of the same integrated transport hub, and were constructed at the same time as part of a common development scheme;

(4) both the station site and the subject land were constructed under the PPP Agreement, and under the same concession with Civic Nexus as the concessionaire;

(5) the train station and the bus station operate as an integrated facility with passengers transferring from train to bus transport and vice versa;

(6) both the train station and the bus station are supported by the same retail and convenience facilities;

(7) the train station and bus station have common facilities including service areas, basement tunnels, travellers aid facilities, toilets and waiting areas. They are linked and continuous as part of an integrated facility;

(8) both the train station and the bus station have pedestrian access from Spencer Street and Collins Street across the plaza area adjoining the train station. They have a common vehicle access road off Adderley Street; and

(9) in the event that there were two larger properties, it would be necessary to value each larger property on the assumed basis that the physical improvements found on each larger property were excluded from consideration. This would lead to the valuation of the train site separately from the bus site. Each would be valued devoid of improvements but assuming the other facility and the rest of the station complex existed.[78] This would mean that some of the integrated facilities would be assumed to exist for the purposes of the valuation of each larger property.

1. PTDA and Civic Nexus contend that the access land should be excluded from the larger property.[79] I disagree. The access road forms part of the subject land, and is also included in the larger property. Without the access road, buses, trucks and cars within the larger property would not have access to the street system, as Spencer Street and Collins Street are not available for vehicular access. As it turns out, it will ultimately make no difference to the valuation whether the access road is included in the subject land and the larger property, or not.

1. There is a difference in view between the valuers as to whether the rail lines and rail yards should be included in the larger property. Mr Brown assigned a nominal rental value to the rail lines and rail yards for the purposes of his EAV calculations.[80] Mr Torr considered the land to be practically constrained by the fact that it is an integral link in Melbourne's rail network. It was inconceivable that a development could proceed which would in any way compromise that function. He considered the existence of the rail lines to be a major problem for the valuer. He had no reliable information on what the rail lines and rail yards might be worth. Even if a depreciated replacement cost could be calculated for the rail lines, he had no basis for ascribing an estimated annual value for the land with the rail lines on it. He had no market benchmarks that would assist him, except to choose some kind of rate of return. He was concerned that the range of plausible rate assumptions that he could make would significantly distort the site values of the other properties within the larger property.[81]
2. Mr Torr foresaw a second hurdle. He had no basis for ascribing an EAV for the land with the rail lines on it, and could think of no market benchmarks which would assist him at all in doing that, except to choose some kind of rate of return which would be very arbitrary. This gave rise to a third hurdle. The rail lines did not stop at the title boundary, but were part of Melbourne's metropolitan and regional rail network. Section 13DC(9) of the VL Act would require the valuation of the entire Victorian regional rail network, including all of its support and satellite functions. As a result, Mr Torr excluded the rail lines from the larger property.
3. I find that the rail lines and rail yards should be excluded from the station site as the larger property for the following reasons:
   • the title to the station site is heavily encumbered by easements relating to rail infrastructure and utilities;[82]
   • VicTrack has exclusive rights to the City Loop and associated equipment and assets;
   • Metro Trains has an existing lease over rail track and rail infrastructure;
   • rail track should be valued under s 13DC(9) of the VL Act; and
   • the Tribunal does not have the evidence necessary to value the rail tracks and rail yards.
4. I will now expand on each of these reasons.

The title to the station site is heavily encumbered by easements relating to rail infrastructure and utilities

1. The title to the station site is Certificate of Title Volume 11093 Folio 657. This title is heavily encumbered by easements, with approximately eleven easements noted on the cover page of Plan of Subdivision 623491D. The easements typically relate to rail infrastructure and utilities at ground level, above ground and underground. Many of the easements coincide with existing rail infrastructure, with the result that they are excluded from the larger property. It is unclear whether there are also encumbrances affecting the larger property created under s 98 of the Transfer of Land Act 1958 (Vic) or s 24 of the Subdivision Act 1988 (Vic). Having regard to the easements, the inclusion of the rail yard areas would not materially affect the valuation.

VicTrack has exclusive rights to the City Loop and associated equipment and assets

1. Clause 2.4 of the facility lease lists a number of reservations in favour of VicTrack:
   • (i) the City Loop;
   • (ii) all Victorian rail track telecommunication infrastructure including ... fibre optic cables located through the Precinct and the baggage handling tunnel;
   • (iii) telephone and radio communications equipment in ... (the Emergency Train Control Room);
   • (iv) radio communications equipment in, and the radio antennae on,... (the Air Conditioning Equipment Room); and
   • (v) cables connecting the Emergency Train Control Room and the Air Conditioning Equipment room;[83]
2. The City Loop and the other equipment and assets listed in cl 2.4 are excluded from the facility lease. They are VicTrack property, and are not under the control of Civic Nexus. As a consequence, they should be excluded from the subject land.

Metro Trains has an existing lease over rail track and rail infrastructure

1. In addition to the effect of easements and reservations, the Commissioner submitted that the rail lines generally are excluded from the facility lease. The Rail Management Act 1996 (Vic) ('the RM Act') establishes the regime for the management of, and access to rail infrastructure in Victoria.[84] Section 38E relevantly provides that railways and rail infrastructure are each a regulated industry for the purposes of the Essential Services Commission Act 2001 (Vic) ('the ESC Act') (other than Part 3 of that Act). Under s 3 of the RM Act:

"rail infrastructure" means a facility that is used to operate a railway and includes -

(a) railway track, railway track sidings, associated track structures and works (such as cuttings, tunnels, bridges, stations, platforms, excavations, land fill, track support earthworks and drainage works), over-track structures, under-track structures, service roads, signalling systems, rolling stock control systems, communications systems, notices and signs, overhead electrical power supply systems and associated buildings, depots, yards, plant, machinery and equipment; and

(b) a facility or infrastructure not referred to in paragraph (a) that is used to operate a railway that is prescribed to be rail infrastructure -

but does not include associated rail infrastructure

1. The definition of rail infrastructure is extremely wide, encompassing railway track, sidings, platforms and stations.
2. Section 38H establishes the principle of passenger priority over declared rail transport services to other users. It provides:

(1) For the purposes of this Part, the principle of passenger priority is the giving of priority to the provision of declared rail transport services to passenger service users over the provision of declared rail transport services to other users.

other users means users of declared rail transport services who use those services to provide freight services and other transport services (other than passenger services);

passenger service users means users of declared rail transport services who use those services to provide passenger services.

1. Section 38I of the RM Act permits the Governor in Council on the recommendation of the Minister by Order published in the Government Gazette to declare a rail transport service to be a declared rail transport service. Section 38I also prescribes the permissible content of such an Order.
2. Passenger Network Declaration Order 2005 ('the PND order') was made by the Governor in Council under this power.[85] The PND order refers to the Infrastructure Lease - Train between the Director of Public Transport, Melbourne Transport Enterprises Pty Ltd (ACN 087 516 210) and VicRail Track agreed on or about 19 February 2004. The Infrastructure Lease - Train (as amended) is made between PTDA, Metro Trains Melbourne Pty Ltd (ACN 136 429 948) ('Metro Trains') and Victorian Rail Track, who leases the Land to Metro Trains. The Infrastructure Lease - Train has the following features:
   • the expression 'Land' as used in cl 1.1 of the Infrastructure Lease - Train includes land known as 'the SCS Land';
   • the expression 'the SCS Land' means that part of the Land at or near Southern Cross Station in respect of which PTDA is, or is entitled to be, the registered proprietor;
   • the definition of 'Land' contained in cl 1.1 includes a wide range of infrastructure, such as track, sidings, yards, tunnels, subways, platforms, station buildings and numerous other assets;
   • sch 1 part C to the Infrastructure Lease - Train includes in the definition of the Land at Southern Cross Station, the platform retaining walls and edge coping where the Land is contiguous to a platform; and
   • the 'Land' located at Southern Cross Station is limited to a depth of 0.75m measured from the top of the rails
3. The effect of the Infrastructure Lease-Train is to vest the rails and rail yards at or near the station in Metro Train; even including the platform retaining walls and the edge coping (i.e. uppermost course of platform retaining walls). These assets are leased to Metro Trains under the Infrastructure Lease - Train. They are not leased to, or under the control of, Civic Nexus.
4. The effect of the RM Act, PND Order and Infrastructure Lease - Train is that the plans forming part of the facility lease are to be interpreted as excluding the rails and the parts of the platforms separately leased to Metro Trains.

Rail track should be valued under s 13DC(9) of the VL Act

1. The need to impose rates on Melbourne's tramway system provided the impetus for the statutory predecessor of s 13DC(9) of the VL Act. In Melbourne Tramway and Omnibus Co Ltd v Mayor of Fitzroy,[86] the Full Court held that where the parts of an undertaking (such as a tramway) extended across municipal boundaries, and were inseparably interdependent, the value of the rateable property within a municipality was to be arrived at by:

(1) deducting from the net annual value of the whole undertaking the net annual value of buildings and engine-houses within each municipality;[87] and

(2) dividing the rateable value of the whole undertaking in the proportion of the rail mileage of the undertaking within each municipal district.[88]

1. The Full Court held that in such a situation, the undertakings extending across several municipal boundaries cannot fairly be valued according to the parochial system.[89] The mileage system must be used to value the undertaking, excluding buildings and fixtures located wholly within a single municipality. These buildings and fixtures are valued in the ordinary manner for rateable property located in that municipality.
2. The decision of the Full Court in Fitzroy followed the earlier decision of Bungaree Shire Council v Ballarat Water Commission,[90] concerning a water supply system which extended into several adjoining municipal districts.
3. These decisions were applied in Esso Exploration and Production Inc v Shire of Morwell.[91] This decision of the Full Court of the Supreme Court concerned the application of the statutory predecessor of the current s 13DC(9) of the VL Act.[92] Land comprising one undertaking extending continuously beyond the boundaries of a single municipal district even though there was no actual separation of the different parts of the rateable property was then known as a 'special rateable property', and stood to be assessed as part of the value of the whole of the land comprising that one undertaking. The Court held that the oil pipeline system was to be valued as one undertaking for rating purposes. The majority of the Court considered that it was open to adopt the contractor's method of valuation of the whole undertaking, as the trial judge had done.[93] Tadgell J dissented on the basis that the profits method should have been used to value the whole undertaking highlighting that the deduced replacement cost of a pipeline did not necessarily reflect its real value.
4. Emerton J discussed Esso in Port of Melbourne Corporation v Melbourne City Council and Valuer General Victoria,[94] in the context of a submission by the defendants in that case that ss 2(3) and 13DC(9) were directed towards a similar purpose. Her Honour held that s 2(3) calls for a factual inquiry into whether the occupancies formed part of a larger property.[95] There was no legal principle that stand-alone occupancies were to be preferred wherever possible.[96]
5. These and other Victorian decisions relating to the application and interpretation of what is now s 13DC(9) of the VL Act are supported by an old but extensive body of precedent in the United Kingdom.[97] Difficult issues such as whether the 'mileage principle' or the 'parochial principle' should be used, and in what circumstances, are discussed at great length in the UK cases.
6. These difficult issues were largely solved for the United Kingdom by the Local Government Act 1948 (UK) and the General Rate Act 1967 (UK) which removed railway and canal premises from rating.[98]
7. In Victoria, the application of s 13DC(9) is informed by Victorian and UK authority. The decided cases give considerable assistance to the application of the mileage principle and the parochial principle.
8. In the present case, the station site stands to be assessed for site value and land tax in the normal way according to the parochial principle. Although I do not need to finally decide, it is very likely that the rail track and the rail yards forming part of wider networks, will, or at least may, require the application of the mileage principle. The rail tracks at the station form an essential part of interstate, regional, metropolitan and underground loop rail systems. These systems have not been assessed and do not stand for assessment in these proceedings.

The Tribunal does not have the evidence necessary to value the rail tracks and networks

1. The simple fact is that the site value or EAV of the rail network and rail tracks at Southern Cross Station cannot be assessed. The information and evidence which would permit this to be done is not before the Tribunal. As Mr Torr noted, it would be a significant task to amass the necessary information. Mr Brown did attempt to assess a rental value, adopting a nominal figure of $15/m2, having regard to the industrial nature and use of the land and having regard to other sites in the inner city largely devoted to such activities. However, for the reasons that I have given, this is necessarily an arbitrary approach. It is not an approach consistent with the requirements of s 13DC(9) of the VL Act.

1. The rail lines are not part of the subject land, and for the reasons I have given, they will be excluded from the larger property. As shall be seen, the exclusion of the rail lines is ultimately of little consequence to the valuation.

1. It is difficult to calculate the total land area of the larger property, and the footprint of the subject land. Mr Torr determined the total area of the station site to be 109,042m2.[99] Mr Brown assessed the total land area of the station at 147,000m2, with the leased land area at 63,214m2, including 7,275m2 of carriageway in an adjoining title.[100] Mr Torr also accepted a ground floor footprint of the subject land of 63,214m2, including the Adderley access road of 12,174m2.[101] It is clear that the areas within the total land area of the station, but outside the subject land, are very largely rail yards and railway facilities.[102]

1. A second possible issue is whether the rails are Crown improvements. However, as the rail lines are excluded from the larger property, it is unnecessary to consider whether the rails are Crown improvements.

1. A third issue relates to the effect of pricing controls, given that rail transport charges are subject to regulatory constraint by legislation.
2. For their part, PTDA and Civic Nexus highlight that s 38J(1)(a) of the RM Act empowers the Governor in Council to make orders specifying the principles for the calculation of prices that an access provider may charge in respect of declared rail transport services that it may provide.
3. A Rail Network Pricing Order ('pricing order') was made in 2005, and was in place prior to the first relevant date. The prices that may be charged in respect of declared rail transport services are subject to a revenue caps.
4. The effect of a pricing order is to restrict the prices that may be charged by an access provider to a reasonable forecast of the access provider's efficient cost of providing those services. Regard is had to the standard and quality of those services, including the reasonably estimated financing costs associated with efficient capital expenditure incurred by the access provider since 30 April 1999. The Essential Services Commission can impose a revenue cap providing for the recovery of a reasonable forecast of the efficient financing costs associated with efficient capital expenditure incurred by that access provider since 30 April 1999.
5. In June 2009, the Commissioner published its Rail Access Pricing Guideline (V.2.0) ('guideline'). The guideline contains detailed provisions giving effect to the order. As a result, there is a zero regulatory asset base as at 30 April 1999.
6. The Metro Proposed Access Arrangement - Final Decision of August 2011 notes that no capital expenditure eligible to be part of Metro's regulatory asset base was funded either by itself or its predecessors Connex (excluding asset replacement or renewal expenditure). No capital expenditure of this type was proposed in the future.[103] The regulatory asset base and the return on assets are shown as zero over the period from 2011/12-2015/16.[104]
7. As PTDA and Civic Nexus submitted, there are very significant constraints on the prices that may be charged by access providers.

The PPP Agreement and the Core Services Payment

1. Mr Magic has financial accounting expertise regarding PPP projects and managed superannuation funds.[105] He said that following the request in 2001 by the Victorian State Government for expressions of interest for the Spencer Street redevelopment, Civic Nexus established a consortium sponsored and financed by ABN Amro Australia Pty Ltd ('ABN Amro') to respond to the tender.
2. The project agreements establish the framework for the project. Mr Magic gave evidence that there are no State guarantees or subsidies to cover any shortfalls incurred by Civic Nexus.[106] The PPP Agreement details the construction specifications, and establishes service standards during the operating phase. At the end of the concession period, all rights and obligations transfer back to the State of Victoria.[107]
3. Under the PPP Agreement, Civic Nexus is paid a fixed Core Services Payment ('CSP'). The CSP has four components:

1. The capital cost component ('CCC') of the CSP represents the cost of repaying Civic Nexus for constructing the asset, including servicing the debt incurred in financing the project. The CCC covers both the principal and interest payable in respect of the debt funding. The CCC payable each quarter is $5,797,119 (indexed to CPI), subject to any abatement that may apply if Civic Nexus fails to achieve or satisfy a key performance indicator.[109]
2. ABN Amro underwrote all funding for the project. Civic Nexus privately financed the project using a mixture of debt and equity. The capital structure consists of three tranches of senior debt underpinned by $119,900,000 of structured equity issued before the commencement of the operating phase.[110]
3. Mr Magic stated that Civic Nexus bears the refinancing risk under the PPP Agreement. When Civic Nexus originally costed the project prior to the Global Financial Crisis ('GFC') in 2008, the CCC was sufficient to cover the quarterly service payments of the senior debt. However, when the senior debt in the third tranche was refinanced in 2014, the refinancing cost was more expensive than originally budgeted.[111]

1. The operating component of the CSP is intended to cover the cost of operating the station for the concession term. Under the PPP Agreement, the quarterly operating component is $1,996,111 (indexed to CPI).[112] Civic Nexus is responsible for the operation of the physical station facilities, including the concourse, platforms, public amenities and bus interchange, but not the operation of the transport services provided by train and bus operators.[113]
2. Civic Nexus subcontracted the majority of the operating services to Honeywell for a fixed price under a Maintenance Service Agreement with a thirty year term. The operating component of the CSP covers the fixed price paid by Civic Nexus to Honeywell, and the costs of contractors such as Spotless and Wilson for cleaning and security services respectively.[114]
3. Mr Magic highlighted that in order to achieve the optimum operational efficiency of the station, Civic Nexus must meet strict standards for passenger movement through the interchange facility. Station platforms servicing metropolitan trains must be cleared within 90 seconds of passenger disembarkation.[115] Station platforms servicing country and interstate trains must be cleared within 120 seconds of passenger disembarkation.[116] The design of all public circulation spaces is required to meet specified levels of service for walkways and for queuing. Pedestrian flow rates are monitored to ensure compliance.
4. Mandated services provided to users of the station include cleaning, waste removal, utilities, repairs and maintenance, security, emergency services, passenger information and signage, baggage handling, travellers assistance, and food and beverage sales.[117]

1. The insurance component of the CSP covers annual insurance costs. Mr Magic gave evidence that the PPP Agreement requires Civic Nexus to maintain insurance, including workers compensation, motor vehicle insurance and public product liability insurance.[118]
2. WT Partnership, quantity surveyors, have prepared estimates of the replacement cost of the station on various disaster dates for insurance purposes. On 2 August 2010, WT Partnership prepared a total replacement cost estimate for the total destruction of the station on a disaster date of 31 July 2011. The estimate is in the amount of $1,005,822,000 (inclusive of GST).[119] WT Partnership subsequently updated its total replacement cost estimate assuming a disaster date of 31 July 2016. The updated estimate is in the amount of $1,132,436,000 (inclusive of GST).[120]

1. The escrow component of the CSP recognises that certain assets of the station (e.g. lifts) have a lifespan shorter than the concession term, and will need to be replaced during the operating phase.[121] It comprises a predetermined total amount fixed under the PPP Agreement which can be used for defined capital refurbishment items.[122]

1. Civic Nexus receives commercial revenue from fees charged to rail and bus operators under various access agreements. Revenue of approximately $2,400,000 is received annually. The lease of office space to rail and bus operators realises approximately $100,000 in rental revenue annually. Additional income generating assets located on the concourse and platforms areas include vending machines, automated teller machines, advertising, lockers and pay phones. This additional income amounts to about $3,500,000 annually.
2. In total, Civic Nexus received approximately $6,000,000 in revenue from commercial income sources in FY 2013/2014.
3. Civic Nexus subleases areas of the station for commercial return, including to retailers such as Woolworths, Subway, WH Smith and Hungry Jack's. In 2011, Civic Nexus implemented a retail development plan to optimise income generation. Mr Magic stated that service and operational restrictions did not permit the establishment of further retailing on the subject land, other than in existing retail areas. These areas are separately assessed for land tax.
4. Rail and bus revenue is derived from fees charged to private rail and bus operators for the use of the station. Skybus pays an access charge of $10 per bus movement to and from Melbourne Airport, and approximately $4 access charge per bus movement to hotels. Skybus also leases office space for its booking facilities.
5. Civic Nexus is not permitted to levy commercial access charges on publicly owned rail operators, such as V/Line and Metro Trains Melbourne. Public transport operators are required to pay utility and telecommunication costs.

1. The income received by Civic Nexus for the station in FY2012-13 was approximately $69,000,000, and was apportioned by Mr Magic in the following proportions:

(d) 5% comprised the escrow (lifestyle maintenance) component;

(f) 12% comprised the rental revenue.[123]

1. Operating and maintenance costs for the subject land exceed commercial revenue by approximately $6,500,000 per annum.[124] From a solely commercial perspective, the subject land operates at a substantial loss.

1. Mr Magic stated that valuation models were usually prepared by investment entities associated with PPP projects, usually when finalising the financial aspects of the project.[125] The purpose of a valuation model is to forecast the financial performance of the PPP project based on various assumptions about the performance of the project over its lifetime. Valuation models are updated, for example, when the deal is finalised and when the project is delivered.[126]
2. Mr Magic said that in his experience of PPP projects, the State's objective is to achieve the lowest possible net present value cost of the project in order to minimise the concession amount payable over the life of the project.[127] If the State were to charge the bidder a payment referable to the value of the land, such as market rent, the bidder would pass this cost back to the State (plus a margin) by the mechanism of the CSP.[128]
3. Mr Magic highlighted the differences between a PPP bid financial model and a valuation model.[129] In the bid model, the CSP is an output derived from the variables inputted into the model; in the valuation model, the CSP is known and is an input to the model.[130] In neither model is the value of land included, as in a PPP, the land is provided by the State.[131]
4. The purpose of a valuation model is to enable a winning consortium to model cash flow over the life of a project at a static point in time, and to calculate the return to investors on the basis of the then known financial structure.[132] A valuation model is periodically adjusted as the project progresses.[133] Later in the life of the project, it reflects the known financial components of the project over the remaining concession term.[134]
5. Mr Magic made it clear that the model does not incorporate any payments for the acquisition of an interest in the subject land. This would effectively amount to the private sector requiring the public sector to pay for land which the public sector already owns, with a margin reflecting the required rate of return for the successful bidder on their expenditure.[135] This would be contrary to the State's objective to achieve the lowest possible net present value cost of the project.[136]
6. When giving evidence, Mr Magic demonstrated how the net present value of the project as shown in the ABN Amro model used by Civic Nexus varies up and down depending on the inputs, including the amount of the original equity, interest rates, the valuation date, CPI changes, the function in the formula bar, the amounts and dates of the debt tranches, and currency exchange rates where debt was raised overseas. Factors reducing the net present value include the operational risk reserve cash to make future payments, depreciation and taxation obligations.[137]
7. Mr Chanter is an infrastructure specialist with 30 years project experience. He described PPPs as a means of facilitating collaboration between the public sector and private enterprise for the purpose of financing, constructing and operating major infrastructure assets, typically requiring significant capital expenditure, such as roads, schools, hospitals and transport facilities.[138]
8. The station site is a social, rather than an economic, infrastructure asset.[139] Social infrastructure assets are funded and constructed on the basis that the relevant public authority (such as the State Government) will pay the private sector to construct the asset, and manage it for an agreed period, known as the concession period.[140]
9. According to Mr Chanter, key benefits obtained by the public sector from a PPP are:

(2) improved operational and commercial performance;

(4) a whole of life cycle approach to the design, construction and operation of the asset, with the private sector bearing the risk of meeting the mandated service requirements over the concession term.[141]

1. In return, the successful bidder receives the investment opportunity.[142] This includes a guaranteed and predictable revenue stream from a sovereign debtor.[143] Ultimate regulatory responsibility remains with the State.[144]
2. Mr Chanter said he had never encountered the public sector accounting for land value, or any interest of the concessionaire in the land on which the asset is situated (e.g. substantial rental) in awarding PPP contracts.[145] It was inconsistent with the cost effective delivery of the project to bring the land into the PPP.[146]

1. Mr Bowman is a partner of Real Estate Advisory Services, with over 25 years of experience in property valuation.
2. In his assessment of the property, Mr Bowman adopted the hypothetical development approach to value the station site. He used Estate Master DF (version 5.3), an industry software tool for evaluating development projects.[147]
   1. As at January 2012, Mr Bowman calculated a total net income of $19,959,385 across Components A to E inclusive,[148] and the Public Transport Area of the station excluding revenue from the CSPs.[149] Mr Bowman capitalised this net income at a rate of 7% per annum, reflecting premium commercial/retail Melbourne CBD sales evidence around the relevant dates.[150] When Components F, G and H were added, a total reinstated 'as new'[151] value of $318,052,571 was achieved if the CSPs were disregarded.[152] When Mr Bowman performed a similar calculation including the revenue from the CSP, he arrived at a value of $1,198,909,714.[153]
3. With or without the CSP, Mr Bowman concluded that the station site was uneconomic to develop, given its total replacement cost of $946,195,363 (including GST).[154] This led Mr Bowman to conclude the site value of the station site was nominal at the relevant dates.

1. There are fundamental difficulties in the use of the hypothetical development method to value land required or reserved for a major public facility such as the station site:

(1) While the revenues from retail and commercial activities, and the costs and expenses relating to the various components of the station can be ascertained, the method does not take into account the value to the State of a major public facility. The value of the station to the State is not included in the commercial revenue actually derived from the station.

(2) In using the hypothetical development method, Mr Bowman could only derive a nominal site value for the subject land of one dollar. This result is absurdly low, having regard to the fact that the highest and best use of the subject land when cleared of improvements is as a key public infrastructure asset.

(3) The treatment and apportionment of the CSP paid by the State to Civic Nexus is problematic. Mr Bowman undertook calculations both on the basis that the CSP was to be included in the hypothetical development analysis, and on the basis that it was not. The results were widely varying, reflecting the inherent uncertainty of the methodology.

(4) The method does not address the fact that the State, after significant deliberation, elected to proceed with an innovative, attractive and expensive design. While on a strictly utilitarian or economic basis, the station building might be considered to be overcapitalised, the fact is that the State selected a high quality design to provide an enhanced experience for the 15 million commuters who use the station annually. Not only did the State seek to provide for existing commuter demand, the State sought a landmark building with the capacity to handle three times as many commuters annually. To achieve this outcome, the State was prepared to pay substantial design and development costs, totalling $700,000,000.[155] Given the State's willingness and capacity to invest, and the pivotal location and size of the station site, it makes no sense to conclude that at a hypothetical auction the State would be able to acquire the station site for nil payment. Alternatively, if the State were to acquire the station site from a hypothetical private owner, it is unlikely in the extreme that the hypothetical owner would accept a nil offer.

(5) The hypothetical development method is beset with great uncertainties and a high level of variability. It is particularly sensitive to the profit and risk margin adopted. In evidence, Mr Bowman agreed that the total costs associated with his hypothetical feasibility approach with CSP - 1 January 2012,[156] gave a Net Sales Revenue of $1,114,594,452. This exceeded Development Costs of $995,294,122 with nil Land Purchase Costs and Land Acquisition Costs. Mr Bowman allowed a Profit/Risk factor of 12.5%. He used a Profit/Risk Allowance of 12.5% because it was the midpoint of his adopted range of 10-15%.[157] This generated a Residual Land Value of negative $3,552,381. Mr Bowman acknowledged that his profit/risk allowance of 12.5% amounted to about $122,820,000. This amount represented either a profit margin to the developers or an allowance for developer's risk. The adoption of a lower profit/risk margin say 8% would reverse the conclusion and produce a Residual Land Value exceeding $70,000,000 for the station site.[158] Mr Torr adopted a profit and risk allowance of 8% because he considered the PPP Agreement already included a built-in profit and it was debatable whether the profit and risk allowance involved a double-count.[159]

1. The usual way to determine the profit/risk margin is by evidence of the profit/risk margin actually agreed in contracts for infrastructure development of this type. However, no evidence was led as to profit/risk margin in like contracts. Mr Bowman's calculations show the high degree of variability associated with the use of the hypothetical development method where social infrastructure is to be valued.
2. In Waalt Homes Pty Ltd v Road Construction Authority,[160] Gobbo J observed that it was well-established that the use of comparable sales is to be regarded as the primary method of valuation.[161] The hypothetical development analysis method offers many opportunities for error in its various assumptions and calculations.[162]
3. Cripps J, in Gwynvill Properties Pty Ltd v Commissioner for Main Roads,[163] said of the hypothetical development method:

The hypothetical development method is normally suspect because it depends on a number of assumptions and a number of estimates, e.g. cost of building, estimated gross rentals obtainable, probable outgoings and, most significantly, the rate percentum of return which could be expected and the profit and risk factor expressed in percentage terms. It has been said that because many estimates and assumptions must be made, the hypothetical development method ought not be used where some use can be made of a comparable sale.[164]

1. Likewise, in 15 Lorimer Street Pty Ltd v Secretary of the Department of Infrastructure,[165] Byrne J described the weakness of the approach[166] as applying an 'apparently scientific formula to a great number of subjectively established variables'.[167] The operation of the formula is such that 'small variations to these variables can have a very great impact on the result'.[168] Valuation judges of great eminence and experience have warned against too ready reliance on the hypothetical development approach.[169]
2. In Coastal Estates, Gobbo J said:

There is one particular aspect about the use of the hypothetical analysis method that increases the uncertainties associated with its use. One of the key ingredients has always been the allowance for profit and risk. The choice of this figure was traditionally supported by evidence as to what minimum figure professional subdividers expected from the particular kind of development, with different rates being sought according as to whether the subdivision was an industrial, residential or resort subdivision. The rate so arrived at might then be modified, according as to whether the time lines were especially long or short. This sensible and practical approach has been somewhat obscured and even distorted by an increasing practice, manifested in this case, of analysing particular purchases of broad acre lands suitable for subdivision by reference to what the purchaser was said to have had in mind when it purchased the property. This is not related to an actual formal analysis but to narratives, often garbled, of what was said to be in the purchaser's mind. This is productive of much dispute and is an unfortunate trend in valuation practice. It serves to illustrate vividly why reliance on comparable sales, even where limited in number, is to be preferred to the hypothetical analysis method if it creates so much uncertainty and speculation.[170]

1. In the present case, similar concern must be expressed. Deduction of a 12.5% profit and risk allowance produces one result, whilst an 8% profit and risk allowance produces another. There is no market evidence to support either figure. Given the uncertainties inherent in the hypothetical development method, the use of the direct comparison method is likely to produce a more reliable outcome. Nonetheless, much of Mr Bowman's research and information is of assistance in other parts of the valuation.

1. Mr Brown is a director of m3property (Vic) Pty Ltd, with over 30 years' experience in property valuation.
2. Mr Brown capitalised station income to determine that the capital value of the station site was far less than its actual cost. He considered the use of the station to be first and foremost a public use with some commercial leveraging.[171] The bulk of the building is used predominantly for the safe passage of commuters from the street to and from rail platforms, and the bus interchange, and vice versa.[172] Without the support of the State Government, the station would not be viable for commercial development.[173]
3. Mr Brown made the following observations:

(1) the station site is generally owned by the State or an associated entity;

(2) the station is not commercially viable in its own right;

(3) no consideration was paid by Civic Nexus for the commercial arrangements for the station;

(4) the State repays the capital outlay over the term of the facility lease;

(5) if the land is included, the repayments would be inflated;

(6) the station reverts to the State at the expiry of the facility lease; and

(7) little or no consideration is paid for the subject land through the facility lease.[174]

1. Mr Brown analysed the replacement cost estimate for the existing development prepared by WT Partnership as at 31 July 2010. After including a 5% contingency, and professional and design fees at 8%, Mr Brown calculated the replacement cost of the station as new at $822,978,954 (exclusive of GST).[175]
2. Using a fully leased capitalisation rate of 7% at or around the relevant date of 1 January 2012, Mr Brown determined capital improved values for the larger property of $263,100,000 (2008), $278,300,000 (2010) and $291,500,000 (2012).[176] This represented only a fraction of the replacement cost; confirming that the station is essentially a public asset.
3. Mr Brown assessed the station site as being not viable without the support of the State Government, ultimately adopting a nominal site value of $1,000,000 for the larger property. His valuation addresses the economic value of the commercial leveraging. However, he does not address what the State, or an instrumentality of the State, would be prepared to pay at a hypothetical auction of the larger property conducted under the Spencer and Raja principles. Mr Brown does not consider what price the State would pay, rather than forgo public use of the station.
4. While Mr Brown's analysis contains helpful information, he does not seek to assign hypothetical rentals to areas of the facility that are integral to its existence and continued function as a station. He does not consider or address the site value of the station site on the basis that the most likely bidder at a hypothetical auction would be the State Government. The State would have a very strong interest in acquiring the station site, as the site for a major public transport facility. The State's level of interest can be gauged by the large investment that it has made in the station. The Explanatory Report records key features of the State's interest in the station site.[177]

Summary of valuations relied upon by PTDA and Civic Nexus

1. There are significant flaws in the valuations relied upon by PTDA and Civic Nexus:

(1) Mr Brown did not take into account the State's involvement in the construction, operation and maintenance of the station through the CSPs. He did not make allowance for the fact that expenses relating to public areas were paid by the State under the PPP Agreement;

(2) in using his hypothetical development method, Mr Bowman produced dual results. He found it difficult to take into account the revenue earned through the CSP as a result of the use of the subject land for its highest and best use;

(3) the CSP was negotiated between sophisticated parties after extensive financial modelling. Clearly, the parties were well informed about costs and expenses, and the developer saw the contribution from the State as sufficient to proceed with the project;

(4) the CSP gives no indication of the hypothetical rental that would be payable on the subject land, as it includes no assumption or element of land value. It is not a proxy for market rental;

(5) Mr Brown did not recognize the key role of the CSP in ensuring the construction, operation and maintenance of the station and subject land. It included an ongoing contribution by the State to ensure that the station was built and operated; and

(6) neither Mr Bowman nor Mr Brown assessed site value by reference to a hypothetical sale of the subject land by a willing but not anxious vendor to a willing but not anxious purchaser. The State stood to be treated as the most likely hypothetical purchaser.

1. Mr Torr is a director of Property Dynamics Independent Property Advisors, with over 35 years' experience in property valuations.
2. Mr Torr used the direct comparison method to determine the value of the two larger properties adopted by him.
3. Mr Torr considered that the subject land formed part of what he described as 'a modern, multi-function public transport and retail complex on the western edge of Melbourne's CBD'. He was provided with GIS[178] estimates of the area of the larger property:

(4) basement level - 420m2 plus rail operational basement areas.[180]

There are approximately 34,000m2 of rail line 'fingers' which intersperse the rail platforms.[181]

1. As there is no directly comparable market rental evidence, Mr Torr applied net market rental benchmarks including benchmarks based on rental levels for large industrial premises with some use limitations.
2. As to the valuation issues, Mr Torr observed:

(1) the subject property contains development elements that fall outside normal property markets - namely its functions as a public transport hub;

(2) the cost of building the station, as specified under the Incorporated Document, and as built, is likely to vastly exceed the rental returns that can be earned from conventional property market sources at the station;

(3) the hypothetical vendor and purchaser would be fully aware that the mandated specifications for the new station are so high that it would never be a financially viable development without large financial contributions from the State Government, whose objective is to get a high quality station/transport hub built on the site;

(4) the transaction parties will know that the contributions from the State will need to be at least the amount required to bridge the gap between the development cost that is financially viable for the other parties, and the actual cost of the station;

(5) there is an underlying premise that any economic over-capitalisation of the subject land will be met by the State;

(6) the PPP contract was agreed on 27 August 2002 on an assessed net present value to Civic Nexus of $341,000,000. That amount was calculated from total predicted payments by the State of $1,840,000,000 payable over a 30 year period. This includes payments for operating costs, insurance, interest, inflation, rail and signal upgrades (possibly) and capital payments;

(7) the component attributed to capital contributions to the project was $1,162,000,000, which on a single proportional basis would equate to a net present value capital contribution of $215,300,000; and

(8) in a separate contract, Civic Nexus paid the State $66,000,000 for the commercial development rights over the demised land for the next 30 years. Civic Nexus was also granted the right to own any developments completed over a period of about 95 years. The $66,000,000 price for the commercial development rights was 'offset' against the State's payment liabilities.[182]

1. To assess the value of the 'larger property' lands, Mr Torr adopted as land values:[183]

Station site - Contiguous land - (Collins and Spencer)

1. Mr Torr calculated EAVs for the two larger properties adopted by him, apportioning the site values for the larger properties to achieve site values:[184]

1. Ms Murone is a partner at Pitcher Partners, with over 20 years' experience. She is an experienced chartered accountant.
2. Ms Murone reviewed the purpose and function of the CSPs used by Mr Bowman in his valuation on behalf of the Commissioner. She was subsequently asked to propose hypothetical CSPs on the assumption that land purchase prices of $55,398,825 as at 1 January 2008; $93,664,575 as at 1 January 2010; and $113,294,250 as at 1 January 2012 were to be included in the hypothetical CSP calculated under the PPP Agreement using the ABN Amro bid model.[185]
3. Ms Murone undertook the requested assessments, noting that the ABN Amro model does not incorporate any payments for the acquisition of an interest in the subject land. She concluded that if the hypothetical base CSP were increased to allow for the hypothetical purchase price as instructed, the hypothetical CSP would increase from $49,130,000 to $51,560,000 in 2008, $52,510,000 to $56,810,000 in 2010, and $56,150,000 to $61,660,000 in 2012.[186]
4. Ms Murone confirmed that the net present value calculations generated by the ABN Amro bid model were of the cash flows that are expected to be received by the investor from the project. At the end of the project, the model calculated the net amount that comes back to the shareholders.
5. In cross-examination, Ms Murone acknowledged that the core function costs started in 2002, but the date used by her to calculate the net present value of the project was June 2006; rather than the date when construction first commenced.[187] She agreed that the actual net present value at the commencement of construction would be lower than that calculated on a valuation date of June 2006. When the valuation date was changed to 31 August 2002, the net present value of the project reduced markedly.[188]
6. It was plain that changes to the inputs produced significantly different results. Ms Murone said that the net present value model produced a value at 2002 that was roughly half the value produced in 2006.[189] She acknowledged that there were many variables in the model concerning the cost of debt structuring, interest rates, exchange and swap rates. The GFC occurred during the valuation period. An exchange rate for the Australian dollar of 0.588 US dollars was not realistic over the period from 2008 to 2012.[190]
7. The use of the ABN Amro bid model to assist in the determination of site value of the subject land is fundamentally flawed and of no help. The ABN Amro valuation model seeks to calculate the net present value of the project in the hands of the project owners. The bid model assists in the calculation of the number and amount of CSPs which will have to be paid by the State to make the project viable for the tender bidders. The bid model and the valuation model have nothing to do with the determination of site value. To seek to derive land value out of the ABN Amro financial models is to misconceive their purpose and utility. They are not a substitute for the determination of site value in accordance with the provisions of the VL Act. Given its dependency on the ABN Amro bid model, I was not assisted by Ms Murone's evidence.

Determination of site value for the larger property

1. I have given careful consideration to the method to be adopted to value the station site. In my view, the preferred method of assessing the value of the larger property is the direct comparison method. This method is clearly more reliable than the other methods attempted by the valuers. While there is no single property directly comparable to the station site, the Spencer and Raja principles stand to be applied, having regard to the levels of value discernible in the sales evidence collected by the valuers as it relates to the larger property. The direct comparison method is also appropriate, having regard to the fact that the station site is reserved for a public facility. Its value should be assessed in accordance with the Raja principle, and is only partly dependent on commercial returns.
2. In ISPT Pty Ltd v City of Melbourne,[191] Morris P said:

It is sometimes thought that sales are either comparable or not comparable: that is, a binary paradigm should be used to classify sales. In my opinion, this is a flawed approach. Rather there will be gradations of comparability: from identical to irrelevant. As this scale of comparability approaches the irrelevant end, there will be many sales that offer so little assistance that they ought be disregarded. Further, there will be circumstances where there is a sale or sales that are strongly comparable; in which case there will be no need to closely analyse other sales, even though these may be comparable in some way.

The comparable size, location and condition of land must also be taken into account in a similar way. Similarly, the use to which land might be put must be considered. This exercise might produce the result that a sale is so dissimilar that it should be disregarded; or it might produce the outcome that a sale needs to be adjusted before being applied; or it might produce the outcome where a sale is given more or less weight in the exercise of a valuation judgment.[192]

The approach of Morris P was comprehensively reviewed by the Court of Appeal, which declined to grant leave to appeal.[193] In Challenger Property Asset Management Pty Ltd v Stonnington City Council,[194] Croft J accepted the principles outlined by Morris J.[195]

1. With the agreement of the parties, the Tribunal undertook unaccompanied site visits to CBD and city fringe sites identified by Mr Torr.[196] Although none of the suggested properties can be considered directly comparable to the station site, the sales evidence provided does give significant assistance as to the levels of value achieved in the market across the relevant dates.
2. In determining the site value of the larger property, considerable assistance is gained from the planning controls; particularly the Incorporated Document and the Incorporated Plans. They set the use and development constraints on the station site:
   • the highest and best use of the station site is for an intermodal transport facility;
   • the station site is a large property exceeding 114,000m2 in area, of which only part is developable under the Incorporated Plans, being the ground floor footprint of 63,214m2, less the access road of 7,275m2;[197]
   • the Incorporated Document restricts the use of the station site to transport related uses, accommodation, office, retail and ancillary uses;
   • the Incorporated Plans significantly restrict the development potential of the station site to a low rise mixed use development similar to that which exists;
   • while there is the potential for towers based on pods, this is an expensive method of construction. In all likelihood, such a tower will not have the significant benefit of direct access to ground level;
   • high density residential development is not a permitted use;
   • additional restrictions on the development of the station site are imposed by the need to provide internal pedestrian access and pedestrian bridges, particularly uninterrupted passage across the Bourke Street pedestrian bridge;
   • there are detailed development conditions, including noise attenuation, glazing, ventilation and air conditioning;
   • there are detailed controls on the provision of car parking, including the number of public spaces and short stay spaces;
   • there is a heritage mural within the station site; and
   • the Incorporated Plans require the development to have a curvilinear and costly roof structure.
3. Despite these significant use and development restrictions, there are nonetheless favourable features relating to the station site:
   • the station site has the potential to be a major public facility and infrastructure asset. Retail facilities, particularly convenience outlets, will benefit from the presence and passage of large numbers of commuters;
   • it occupies a gateway position between the CBD and the Docklands precincts of Melbourne;
   • it is an iconic location, well known to Victorians;
   • it is the premier transport hub in Victoria, attracting overseas, interstate and regional passengers, who use rail and/or bus services. It has the capacity for major rail platforms and a bus interchange;
   • it includes a significant area of land with good potential for retail, along Spencer Street and Collins Street; and
   • it has good road access to Adderley Street.

1. In considering what the State or an instrumentality of the State would bid for the station site at a hypothetical auction, it is fundamental to consider the development potential of the station site. The State would not disregard ordinary commercial considerations in determining what is to be paid for the potentiality of the land.[198]
2. The sales evidence shows numerous sales in the CBD or Southbank areas of sites intended for mixed use or residential tower development. Typically, sales of land with tower potential sold over the relevant dates at rates exceeding $3,000-$4,000/m2 rising to $10,000-$11,000/m2.[199] The station site plainly does not have the potential to achieve $3,000/m2. It is not a high rise property development. These levels of value are clearly too high for the station site.
3. Given the significant restrictions on the use and development of the station site, the rates per square metre achieved in the sale of properties for residential or mixed use high rise or tower developments within the CBD provide an upper cap on rates that might be considered for the station site.
4. Putting aside tower sites, the station site can be considered to have the following development characteristics:
   • it is earmarked for specific development as an integrated transport interchange;
   • the permissible development can include retail;
   • the permitted development will include areas, such as the bus station and the basement area, most analogous in use to light industrial areas, and support areas in the basement and within the station site;
   • the Incorporated Document and Incorporated Plans govern the form of development;
   • the site has high exposure to major public thoroughfares such as Collins and Spencer Streets, as well as commuter traffic, and is in an excellent location for development;
   • the site has good bus and vehicular access from Adderley Street;
   • Spencer Street and Collins Street are not available for vehicular access; and
   • the site is free from contamination.[200]

1. The hypothetical vendor, and the State, or an instrumentality of the State, would expect to pay a significantly higher rate than is achieved by the city fringe sales evidence. This is because:
   • the station site has a far superior location to the fringe sites;
   • the station site has far better exposure to major public streets and people movement;
   • the station site has the potential to include significant retail components;
   • a significant area of the station site, estimated to be around 56,000m2 is to be developed, with the balance mainly consisting of rails and rail yards; and
   • the fringe sites are predominantly industrial in character.
2. While the city fringe is a far inferior location to the station site, there is sales evidence as to the values achieved for large sites in this area (although they are still much smaller than the station site):

(1) 600 Lorimer Street, Port Melbourne is a site with an area of 44,450 m2. It is proposed as a single storey telecommunications centre. It was purchased in 2010 at $290/m2, but was then for a pure industrial use. The site was part sold in 2013 for 13,000m2 of land for $10,400,000, being a rate of $800/m2. Under the Fisherman's Bend planning strategy, it is zoned Business 3 with mixed use. The site has a current asking price of $675/m2;

(2) 826-830 Lorimer Street, Port Melbourne sold in December 2010 for $8,350,000. The property has a land area of 14,300m2, and achieved a rate of $584/m2. The property was industrial at the time of the sale, and is proposed for use as a data centre;

(3) 174 Turner Street, Port Melbourne sold in December 2009 for $12,000,000. This property had an area of 20,940m2, and sold at a rate of $573/m2. It was industrial at the time of the sale, with a 10,100m2 old office and warehouse;

(4) 1 Fennell Street, Port Melbourne sold in November 2009 for $7,500,000. The property was zoned Industrial 4, and is located at the corner of Fennell, Bertie and Bridge Streets. The property had an area of 12,160m2, and sold at a rate of $617/m2; and

(5) 12-62 Cook Street, Port Melbourne sold in September 2010 for $12,650,000. The property had an area of 31,220m2, achieving a rate of $405/m2. The property is intended for a 10 lot industrial subdivision, and was industrial at the time of the sale.[201]

1. Some of the suggested fringe comparable sales are smaller sites:

(1) a quality industrial site at 129-161 Ferrars Street, Southbank sold in February 2014 for $9,800,000. The property had an area of 5,149m2, and achieved a rate of $1,903/m2. The site is intended for public use, being for a new primary school. It was sold by the University of Melbourne to the Department of Childhood Development;

(2) a property at 12-62 Cook Street, Port Melbourne sold in November 2012 for $4,440,000. The property had an area of 6,000m2 and achieved a rate of $740/m2. The highest and best use of the property is industrial, and a 10 lot industrial subdivision was proposed;

(3) a property at 1 Rogers Street, Port Melbourne sold in September 2012 for $5,060,000. It had a land area of 3,920m2 and achieved a rate of $1,291/m2. It is proposed for mixed use development;

(4) a property at 880 Lorimer Street, Port Melbourne sold in April 2012 for $3,500,000. It had a land area of 4,160m2, achieving a rate of $841/m2. It was zoned Business 3, and a quality headquarters development is planned;

(5) a Business 3 zoned vacant redevelopment site on the corner of Todd and Wirraway Streets, Port Melbourne sold in December 2010 for $2,700,000. It had a land area of 5,181 m2, and sold at a rate of $521/m2;

(6) a property at 9-11 Wharf Road, Port Melbourne sold in June 2010 for $2,500,000. The property was 4,000m2 in area, and achieved a rate of $625/m2. The property is zoned Industrial 1, and located on the corner of Sabre Drive and Wharf Road, Port Melbourne; and

(7) a property at 80 Wirraway Street, Port Melbourne was a Business 3 zone vacant redevelopment site when it sold in January 2010 for $2,250,000. It had an area of 4,385m2, achieving a rate of $513/m2.[202]

1. The Melbourne Convention and Exhibition Centre ('the convention centre') development at South Wharf is under a PPP arrangement. The agreement might be thought to be a useful comparative transaction to analyse, having regard to the location of the site and its use for a public purpose. However, the evidence before the Tribunal in relation to this agreement gives no real assistance.
2. Mr Bowman said that the convention centre precinct is 19.25ha in size. It was developed under a PPP contract awarded in early 2006 to the tenant Austexx Plenary Melbourne Pty Ltd, with a lease term of 99 years. The convention centre includes a plenary hall, which can accommodate 5,000 delegates, and has the capacity to be divided into three smaller plenary configurations.[203] The centre also includes a ballroom, an 18m high glass facade fronting the Yarra River, 32 meeting rooms of various sizes, a ground land foyer for 8,400 guests. The centre has a net lettable retail area of 28,653m2, and 3,000 car parks at grade and under the Westgate Freeway.[204] Construction of the new centre was completed by the end of 2008.
3. Development of the convention centre is governed by an Incorporated Document. The convention centre is located within a precinct under the scheme.
4. Mr Bowman noted that the developer paid the State a commercial development fee of $93,000,000.[205] He considered that consideration of $90,000,000 related to the car parking, and that $3,000,000 related to the freehold elements of the PPP.[206] No consideration was attributed to the convention centre site itself.[207] Mr Bowman considered the highest and best use of the site would be uneconomic to develop without the contributions made by the State Government.[208]
5. In contrast, the sales information obtained in relation to the convention centre shows that it was sold in July 2010 for $42,270,000.[209] It had an area of 8,607m2. The property was purchased by adjacent owners. The rate of $4,911/m2 is a high value for a Southbank former industrial property, possibly reflecting the importance to the adjoining owners of site consolidation. Given the conflicting information before the Tribunal, not a lot of assistance can be gained from the analysis of the convention centre.

1. As previously set out,[210] Mr Torr adopted the following land values for the station site:[211]

Station site - Contiguous land - (Collins and Spencer)

1. I have difficulty with the level of values adopted by Mr Torr. These values would lift the site value of the station site close to, or into the range of, values to be found in the sales evidence for CBD tower sites.[212] By contrast, the fringe sites sales evidence for larger sites shows a range from $405/m2 to $800/m2. As might be expected, smaller fringe sites showed a higher range from $513/m2, to $1,903/m2 for a new primary school use. It is a significant jump from these levels of values to some of the levels adopted by Mr Torr. In this respect, I note that the site values of the station site advanced on behalf of the Commissioner have fluctuated significantly at different stages of the assessment process, and during the conduct of the proceeding.
2. Whilst the station site is undoubtedly a much better location than a fringe property, the station site is also much larger. The sales evidence shows a noticeable reduction in land value rate per square metre as the size of the site for valuation increases. It is not apparent that Mr Torr makes due allowance for the large size of the station site.
3. Another difficulty with Mr Torr's adopted land values is the very wide range of land values:

Station site - Contiguous land - (Collins and Spencer)

1. In my view, the sales evidence assists in the determination of a rate/m2 for the available land within the station site with the potential for development devoid as it must be of improvements. But a more detailed or graduated approach for areas or sub-areas within the site as ultimately developed is unsupported by sales evidence. The wide variation in the range of figures adopted is essentially subjective or judgemental.

Land area for rate per square metre for the station site

1. The final consideration is the land area to which a rate per square metre is to be applied.
2. Mr Brown determined that, excluding easements, rail tracks and rail yards, and under the restrictions imposed by the Incorporated Document and Incorporated Plans, there is an available land area with the potential for development of approximately 63,214m2, less the 7,275m2 of shared carriageway to Adderley Street.[213] This gives a total area of 55,939m2.
3. Mr Torr, in his analysis of larger properties, determined a train site area of 35,380m2 and a bus site area of 24,554m2.[214] These give a total area of 59,934m2. This is higher, but not dissimilar to the total area of 55,939m2 determined by Mr Brown.
4. I will adopt the lower area of 55,939m2, as determined by Mr Brown. If this area is marginally low, it favours the taxpayer. However, I am not satisfied on the evidence before me that I should proceed on the basis of any greater area of the land available for development, given the constraints of the Incorporated Document and the Incorporated Plans. As the rail lines do not stop at the title boundary and if valued, may be subject to s 13DC(9) of the VL Act, the inclusion of the rail lines and rail yards in the larger property is not appropriate. In any event, as the land area containing the rail lines is heavily encumbered by easements, the inclusion of the encumbered land area in the larger property is unlikely to materially affect the valuation.[215]
5. Similarly to Mr Brown, I have not included the area of access land to Adderley Street into the available land area, although it forms part of the subject land. The access land is incapable of development under the Incorporated Document and the Incorporated Plans. It is shared with other users who also depend on it for vehicular access to their premises. I have taken the view that it is not so much a matter of the access land adding value to the station site. Rather, if the access land were not available, the station site would have significantly less value than the values I have attributed. If access were not available to the street system, the station site would be unworkable as a transport intermodal facility.
6. When the station site was valued by the Valuer General's office, Mr Webb adopted a land value of $1,000/m2 for the station site in 2010 and 2012, prior to the application of s 2(3) of the VL Act.[216] His valuation shows that he applied a similar rate to determine the site values of the neighbouring properties of 201 Spencer Street, Docklands and the Crown Casino Complex.[217] Regarding the base level land value of $1,000/m2, and as Mr Torr noted there are significant development constraints.[218]
7. In my view, a base level land value of $1,000/m2 is appropriate as at 2012. If this rate is in error, it is marginally on the low side, favouring the taxpayer. However, I am not satisfied on the sales evidence that I should adopt Mr Torr's higher rates.[219]
   1. Having considered all things and circumstances that affect the station site, and doing the best I can with the evidence as a whole, I adopt a rate of $1,000/m2 as at 1 January 2012. I have had particular regard to the highest and best use and development in the context of the Incorporated Document and Incorporated Plans, and the sales evidence before the Tribunal in adopting this figure. Applied to an area of 55,939m2, this gives a site value for the larger property of $55,939,000.

2008 and 2010 site values - effect of the GFC

1. Mr Bowman gave evidence as to market changes over the period 2007 until 2012. His evidence was that the commercial property market peaked in late 2007 to early 2008, and then declined in value through 2008.[220] Mr Bowman stated that the market reached its lowest point in late 2009 or early 2010. By January 2012, the market had stabilised but not returned to the same levels of value as the peak in 2008.[221] During this period, the market value of commercial real estate in Melbourne was severely impacted by the GFC.[222]
2. Mr Bowman provided sales evidence of CBD, and fringe office and suburban buildings which sold or were resold over that period:

(1) Customs House at 414 LaTrobe Street Melbourne fell in value by 26.23% ($17,600,000) after being sold in February 2008 and resold in October 2009, with the yield of the property increasing from 6.5% to 9.4% per annum;

(2) 441 St Kilda Road, Melbourne fell in value by 11.45% ($7,500,000) after being sold in December 2007 and resold in March 2012, with the yield of the property increasing from 6.9% to 9.3% per annum;

(3) 570 St Kilda Road, Melbourne fell in value by 16.49% ($4,700,000) after being sold in May 2008 and resold in September 2012, with the yield of the property increasing from 7.9% to 10% per annum;

(4) Knoxfield Distribution Centre at 1464 Ferntree Gully Road, Knoxfield fell in value by 21.05% ($8,400,000) after being transferred as part of a portfolio in October 2009 at book value, and consequently resold in August 2011 in an open market transaction. The yield on the property increased from 8.0% to 9.0% per annum; and

(5) 2-4 Yarra Street, South Yarra, an inner metropolitan development site, fell in value by 19.64% ($5,500,000) after being sold in mid-2009 and resold in April 2011.[223]

1. Both Mr Webb and Mr Torr adopted 2010 and 2012 revaluation figures as the same or very similar, but adopted a lower figure for the 2008 revaluation.[224]
2. Mr Torr had a different view to Mr Bowman. He said that different parts of the property market behave in different ways. He classified the properties referred to by Mr Bowman as investment properties. In Mr Torr's view, the low point of the market was in early 2009, and the market substantially recovered from there.[225] In Mr Torr's view, sales of development sites took a different course to investment properties over the 2008-2012 period. He said that he was overly conservative in 2008, because there were no sales at the benchmark level. He adopted a benchmark figure for 2008 which he considered was at the bottom end of the sales range.[226]
3. Mr Brown adopted a nominal amount of $1,000,000 in all three revaluation years. Consequently, his valuation in all three revaluation years is the same.
4. I accept the evidence of the valuers that the market for commercial properties recovered from 2010 to 2012. I also accept that the market for commercial property sites was difficult, in the aftermath of the GFC but subsequently recovered to former levels. I accept that a conservative view should be taken of vacant property values in 2008. The effect of the GFC was after the relevant date of 1 January 2008 and recovery was occurring in or before 2010. Whether the 'low point' was early 2009 or the later part of 2009, the relevant date for the 2008 revaluation precedes the market decline and the 2010 revaluation relevant date is after the market had commenced to recover. Again, doing the best that I can with the evidence before the Tribunal, and for the reasons that I have set out, I adopt levels of value for the developable land area of the station site set out in the table below:

1. Accordingly, I assess the site value of the station site as the larger property, but excluding the rail lines and rail yards as follows:

1. There are differences between the valuers in the assessment of EAV for the larger property and the subject land. Estimates range up to $4,500,000 for the EAV of the subject land, and up to $31,259,399 for the EAV of the larger property.
2. For the reasons earlier given, the rail lines and rail yards are excluded from the subject land and the larger property.[227] I will adopt EAV levels and rental levels on the basis that bus and vehicular access is available to the respective premises and components. It would be wrong to add additional EAV for the access road, which is shared with other properties, and under the Incorporated Document and Incorporated Plans has no use or development potential for any purpose other than an access road. It would be inappropriate to allow additional rental for the provision of access which would be assumed by a hypothetical lessee to be already available as a basic requirement of a transport intermodal interchange.

1. The Spencer test and Raja principle also apply to the determination of rental values as they relate to the subject land. It is necessary to consider the position of the State Government as the likely hypothetical tenant of the subject land, and to determine what it would pay having regard to all things and conditions affecting the subject land. This is the rental that the subject land can command under s 5A(3)(f) of the VL Act. To do this, it is necessary to have regard to prevailing rental levels.
2. Both Mr Bowman and Mr Torr carried out EAV assessments of the subject land. These assessments were completed by reference to actual revenue or by direct comparison with industrial rents. Mr Bowman prepared a number of tables, including the following table showing an Gross Income assessment for the subject land as at 1 January 2012 (from which is excluded the allowance made by Mr Bowman of $20/m2 for the access road):[228]

1. Reviewing financial information for the station over the 2007 to 2013 financial years, Mr Brown concluded that the bulk of the expenses relate to the public areas of the station. As the operating expenses for the subject land exceeded the revenue in every year from 2008 to 2013, Mr Brown adopted a nil EAV for the subject land. Mr Brown, however, did not apply the Raja principle or consider rental values on the basis that the most likely tenant of the station was the State Government, which would pay a market rate for the public facilities required for public use.
2. Mr Torr also provided calculations of EAV as at 1 January 2012 for the train station site and the bus site which were in the following form:[229]

Net Market Rent - Assuming normal NET leases incl proportion of Land Tax as charged

Less Owners outgoings not recoverable - including vacancy 10.00%

Estimated Annual Value Calculation 01/01/2012 - Bus site

Net Market Rent - Assuming normal NET leases incl proportion of Land Tax as charged

Less Owners outgoings not recoverable - including vacancy 10.00%

1. The main difference between Mr Bowman's calculations and Mr Torr's calculations relates to the rental to be charged for the train platforms and the bus station site. Mr Bowman ultimately allowed $10/m2 for the train platforms, and $20/m2 for the bus interchange facility. Mr Torr initially allowed $50/m2 for the train platforms and the bus interchange facility; later increasing this to $95/m2 .[230] Mr Torr explained that $50/m2 was the benchmark value for lower quality industrial space, while $95/m2 was his benchmark for the upper end of the industrial rent scale.[231] Mr Torr measured the area of platforms at 21,503m2;[232] Mr Bowman measured the platform area slightly higher at 21,905m2.[233]
2. Two other differences between the two tables is that Mr Bowman's table refers to Gross Income while Mr Torr assesses the Net Income (although he then deducts a further 10% for not recoverable owners outgoings). Mr Torr also adds back Council rates in accordance with the definition of EAV in s 2 of the VL Act, Mr Bowman does not appear to have addressed this.

Image 2: View looking down onto platforms[234]

1. The Tribunal is required to determine, on the evidence before it, the rate per square metre to be applied to the train platforms and the bus interchange. As I have already set out, the train platforms are long fingers, at ground level, adjacent to and surrounding the rail lines. They are enclosed within a curvilinear roof, have an elongated shape and configuration specific to their use, and are in generally good condition. According to Mr Torr, 14,572m2 of the platforms are under the main roof, while 6,931m2 of the platforms are not.[235] Use of the platforms is restricted by the need for the platforms to be open for public use, and to meet passenger movement standards.[236] The platforms not under cover of the main roof do not provide the same environment or experience. In 2012, access to platforms was restricted at the Collins Street end, but still open at the Bourke Street end.[237] The open platforms are more akin in amenity to the traditional Spencer Street platforms.
2. Taking all things into consideration, I will adopt Mr Torr's rent of $50/m2 for the 14,572m2 of the rail platforms under the main roof. I will adopt Mr Bowman's rent of $10/m2 for the rail platforms that are not under the main roof. This is done by deducting 14,572m2 from Mr Bowman's total platforms area of 21,905m2 to arrive at 7,333m2. These adjustments add $582,880 to Mr Bowman's EAV assessment for the subject land.

Image 3: View from back of Coach Terminal[238]

1. Mr Torr assessed the bus station area at 12,380m2.[239] Mr Bowman's area estimate was slightly less, at 12,274m2.[240] Features of the bus station site include illumination by industrial lighting. It is accessed by a corridor, through the Spencer Street retail areas, or internally through access ways from the train station. Bus access is obtained from Adderley Street.
2. None of the valuers were able to provide any comparable rental evidence for the bus terminal. Mr Bowman assessed the bus station area as attracting a higher rental than the rail platform area. The bus terminal is entirely enclosed, with little or no natural light despite its ground level location. I find that the use, shape, configuration, access arrangements and internal quality justify the rent of $50/m2 adopted by Mr Torr as an appropriate value for lower quality industrial premises. I will adopt this rent for the bus terminal. This will add an additional $368,220 to Mr Bowman's assessment.

1. It is not possible, on the evidence before the Tribunal, to resolve or reconcile all of the differences between Mr Bowman's and Mr Torr's calculations of EAV for the subject land. I generally prefer Mr Bowman's assessment, because Mr Torr's figures are affected by his adoption of two larger properties, which I have rejected.[241] Mr Bowman has given a more comprehensive assessment than Mr Torr in assessing the market rent that a hypothetical tenant such as the State would pay, I accept that a rental level of $50/m2 (as a net rent excluding outgoings) for the covered platforms and the bus interchange is appropriate. I do not accept the $95/m2 proffered by Mr Torr in his last report for high quality industrial space as applicable to these areas. I will add the amounts of $582,880 and $368,220 to Mr Bowman's assessment of gross income for the subject land of $2,328,480, excluding the access road.
2. However before these adjustments can be made, as they are net income figures obtained by Mr Torr, Mr Bowman's gross income needs an outgoings allowance to be deducted to derive a net income. Mr Torr in his various calculations has applied a 10% adjustment for owners outgoings not recoverable including vacancy. In Exhibit 4, Mr Bowman deducts total outgoing of $13,313,770 from a total gross income of $77,772,155 to arrive at a net income (for all components) of $64,458,385. The outgoings represent 17.12% of the gross income. I will adopt the higher of the two outgoings as Mr Bowman has had access to actual outgoings information and after rounding to the nearest percentage, I will reduce Mr Bowman's gross income of $2,328,480 by 17% to calculate at a net income of $1,932,638 and now add the additional amounts of $582,880 and $368,220 to arrive at $2,883,738.
3. The other difference between Mr Torr and Mr Bowman is the calculation of EAV in accordance with the definition in s 2 of the VL Act. The VL Act does not include the deduction of rates and charges under the Local Government Act 1989 (Vic) as a usual tenants expense or outgoing. Mr Torr has consequently 'added back' an amount for Council rates in each of the revaluation years by applying Council's rate in the dollar to the net income. The rates Mr Torr has used in each of the revaluation cycles are as follows:

As Mr Bowman has not undertaken this calculation, I accept Mr Torr's view and apply these rates to each of the revaluation years to assess the EAV.

1. I assess the EAV of the subject land as $3,016,390 as at 1 January 2012. Doing the best I can with the evidence and having regard to the movement of rental values over the period from 2008-2012, I will reduce the EAV for the earlier years by 3% per annum and apply the Council rates in accordance with the above table in order to complete the EAV assessments and maintain consistency. This gives an EAV assessment for the subject land of:

1. The properties which together with the subject land make up the larger property consist of:[242]
   • Component B - all retail areas in the Southern Cross Station;
   • Component C - all retail areas with frontage to Spencer Street;
   • Component D - Spencer Outlet Centre;
   • Component E - Mezzanine Car Park;
   • Component F - 664 Collins Street Pad;
   • Component G - Hotel site above the Spencer Outlet Centre; and
   • Component H - Residential tower site.
2. Each property must be assessed for EAV, and the total EAV for the station site determined.

EAV - Component B - Southern Cross Retail EAV - Component C - Spencer Street Retail

1. It is convenient to deal with Components B and C together. Retail areas in the station site were leased under a head lease to Delaware North Australia Pty Ltd until 2011.[243] In 2011, Civic Nexus took control of all retail outlets.[244] Mr Brown reviewed the revenues and expenses relating to the retail areas in the station in 2012 and 2013. A lower level of income was received prior to 2011. To calculate the 2010 and 2008 EAV assessments, Mr Brown reduced the later year assessments by 3% per annum.[245]
2. Mr Brown's revenue figures were:[246]

Mr Brown adopted the following rents at the respective revaluation years:

1. Mr Bowman also undertook an assessment of the Component B and C retail areas. His figures for actual net rents were $3,960,000 and $1,914,900 respectively for Components B and C, giving a total of $5,874,900.[247]
2. Mr Torr was provided with a rental schedule for the Component B and C retail areas. Mr Torr made adjustments for market movement in the 2010 and 2008 years.[248]
3. Mr Brown has had access to the most comprehensive information regarding the revenues and expenses relating to Components B and C. I generally accept his evidence and calculations but will add back Council rates in accordance with Mr Torr's methodology.[249] As a result, I adopt a combined EAV assessment for Components B and C :

1. The Spencer Outlet Centre ('outlet centre') is part of the larger property, but is unrelated to Civic Nexus. The outlet centre is contained within a leasehold component (south) and a freehold component (north). Based on an information memorandum prepared in connection with the possible sale of the property, Mr Brown was able to deduce a net income for both the freehold (5,600m2) and leasehold (22,400m2) components of the outlet centre. Mr Brown adopted an EAV of $6,000,000 for the leasehold component of the centre in 2012.[250] This led Mr Brown to derive EAVs in relevant years as follows:[251]

1. In his assessment of Component D, Mr Bowman calculated an imputed net rent for the outlet centre, assuming a net leasable area of 23,000m2 and a net rent of $700/m2.[252]
2. Mr Torr was not able to obtain rental information relating to the outlet centre. As a result, he used the Melbourne City Council's net annual values for those occupancies.[253] He considered it highly unlikely that any of the EAV's would be less than 5% of the Capital Improved Value.[254] The basis for the Council's net annual value assessments is not in evidence before the Tribunal.
3. Mr Brown has obtained recent and accurate information as to the net income of the outlet centre. I accept and adopt his EAV assessment for Component D[255] but will add back Council rates in accordance with Mr Torr's methodology.[256]

1. The mezzanine car park is controlled by Civic Nexus, and comprises about 800 car parking spaces. Mr Brown obtained information in respect of the income and expenses for the car park:[257]

Mr Brown adopted the following rents at the respective revaluation years:

1. In his assessment, Mr Bowman relied on actual net rent for the car park of 5,000 per car space giving a total of $4,000,000.[258]
2. Mr Torr does not appear to have had information about the mezzanine car park.
3. I will adopt Mr Brown's figures, as he has had access to more information concerning the mezzanine car park than the other valuers. As a result, I find the following EAV assessment for Component E but will add back Council rates in accordance with Mr Torr's methodology.[259]

1. The 664 Collins Street Pad site above platforms 15 and 16 is developed. The total development has a gross floor area of 46,000m2 of commercial space and car parking. The site has been developed and is occupied by AGL.[260] After a review of sales evidence, Mr Brown adopted a capital figure of $29,900,000, by applying a value of $650/m2 to the 46,000m2 GFA.[261] Mr Brown calculated rent on the basis of 5% of the capital value of $29,900,000 maintaining this value as a constant over the previous relevant dates.[262] This results in an adopted rental of $1,495,000 for each relevant date.[263]
2. In his assessment, Mr Bowman adopted comparable rent for a developed pad site. Allowing $250/m2 over a net leasable area of 7,691m2, Mr Bowman produces an EAV of $1,922,750.[264] Later, he referred to a capitalised figure of $3,500/m2 giving a total amount of $26,918,500.[265]
3. Mr Brown's assessment is based on the actual GFA of the commercial space and car parking of the development occupied by AGL, rather than comparative figures. In the circumstances, I am satisfied that his estimate gives the best guide.
4. I accept that it is appropriate to apply this figure over each relevant date as he did. I accept his analysis and adopt the following EAV assessment for the 664 Collins Street Pad site[266] but will add back Council rates in accordance with Mr Torr's methodology.[267]

EAV - Component G - Hotel Pad Site above Spencer Outlet

1. In relation to Component G, there is no evidence that a hotel pad site has been constructed. In assessing the hotel pad site, Mr Brown relied upon sales evidence, applying 5% as the rental value as at 1 January 2012 to the assessed capital value of $5,000,000.[268] The assessed capital value is derived by applying a value of $200/m2 to a GFA of 25,000m2.[269] This gave an adopted rent of $250,000, which Mr Brown kept constant for the previous relevant dates.[270]
2. In his assessment, Mr Bowman applied a direct comparison industrial rent of $10/m2 to an area of 2,083m2, giving an EAV of $20,830.[271]
3. Mr Torr does not appear to have attributed any value to the hotel pad site.
4. I accept Mr Brown's evidence and assessment, which is based on sales evidence. As he has done, I will adopt the same EAV across the relevant dates[272] but will add back Council rates in accordance with Mr Torr's methodology.[273]

1. Mr Bowman made an EAV assessment for the residential tower pad site of $12,500, based on an area of 1,250m2, and net rent of $10/m2.[274]
2. Mr Brown does not address the value of the residential tower pad site. No pad has yet been constructed, but a pad is permitted under the Incorporated Document.
3. I adopt Mr Bowman's EAV assessment in relation to Component H, and apply this assessment across all relevant dates[275] but will add back Council rates in accordance with Mr Torr's methodology.[276]

1. The EAV assessments for 2008, 2010 and 2012 that I have made are summarised in the following table. Proportions for the EAVs of the respective components as against the total EAV for the station are also set out in the table:

Southern Cross Retail and Spencer Street Retail

1. Applying and rounding the respective proportions of the EAV to the site value of the larger property gives the following results:

1. Accordingly, I find the site value of the subject land at the relevant dates to the respective land tax years to be:

Image 4: Components of the Southern Cross Railway Station[277]

[1] It is common ground that PTDA is the successor of the Spencer Street Station Authority ('SSSA') and the Southern Cross Station Authority ('SCSA'). SSSA was renamed SCSA on 13 December 2005. SCSA was abolished on 31 July 2009 and its property transferred to the Secretary of the Department of Transport. On 2 April 2012, the Minister of Public Transport transferred property held by the Secretary of the Department of Transport, Planning and Local Infrastructure to PTDA.

[2] Crown Allotments 2084, 2085 and 2086, Parish of Melbourne North, City of Melbourne, were re-subdivided by Plan of Subdivision PS62349, and are now described as Lots 2084A, 2085A and 2086A. The purpose of PS62349 was to re-align the boundaries between Lots 2084 and 2085 and Lots 2085 and 2086. No party suggested that the boundary re-alignment effected by PS62349 was material to the valuation. Lot 2084A is now embodied in Certificate of Title Volume 11093 Folio 657.

[3] PTDA & Civic Nexus, 'Statement of Contentions' in PTDA & Civic Nexus Pty Ltd v Commissioner of State Revenue, Z548-551/2013, 7 May 2014 [5].