Dubious deferral to convert Freo backpackers

FREMANTLE councillors have deferred for dubious reasons a City officer’s recommendation to approve a new 15-year lease agreement with tenants of the Old Fire Station Backpackers on Phillimore Street.
The item presented at full council last week appeared straightforward, the request by Bakpak Freo based on the impact COVID has had on the popular hostel accommodating local, interstate and international visitors.
Bakpak Freo proposes to spend an estimated $450,000 to redevelop the ground floor of the two-storey heritage-listed building into a bar and restaurant.
The sticking point raised at FPOL was the proposed annual rent reduction under WA COVID-19 rules. Bakpak Freo requests a new lease of 10 years with a further option of five years to replace its existing lease that expires in 2024. “Due to the impact of COVID-19 Bakpak Freo Pty Ltd’s current business model is not sustainable,” the officer’s report states. “The lessee proposes a reinvention of their business model to include a bar/restaurant on the ground floor using the street frontage of Phillimore Street. They will continue to maintain the hostel accommodation on the first floor and rear of the premises.”
The hostel is one of the highest rating backpackers in Fremantle based on online reviews, its status, “the operator assisting international visitors with securing local employment”.
Officers report while some sectors have started to perform better since the easing of restrictions, COVID restrictions on interstate and international travel continue to impact accommodation businesses such as Bakpak Freo, which recorded a 53.7 per cent decrease in revenue between April and June 2020. The July to September 2020 and October to December 2020 quarters saw a 75 and 72 per cent revenue reduction, respectively.
The officer’s report adds: “The City, in line with the Commercial Tenancy (COVID-19) Response Act 2020, has provided waivers and deferral options in line with revenue loss. The current arrangement provided is 25 per cent of normal rent ($25,000pa + GST) being payable up until 31 March 2021, in line with the current end date of the COVID Act.”
Importantly, the officers note: “The lessee has developed a strong business model in this industry. The lessee’s proposal of activating the street frontage on Phillimore Street would create an activation on Phillimore Street that is currently not occurring in this location.”

COVID rent relief

BEACONSFIELD Cr Hannah Fitzhardinge agreed and said there had been “some discussion” about the Bakpak proposal raised at FPOL by Crs Rachel Pemberton and Sue Groome after Cr Jenny Archibald moved an amendment to the officer’s recommendation to include the proposed rent reduction until WA’s borders re-opened to international tourism and the lessee opened its proposed bar and restaurant.
Under the City’s leasing policy, a property is exempt from a competitive leasing process if a property is leased to a tenant paying full commercial market rent or above and adds significant value to the overall tenancy mix and appeal for visitors.
Officers said they continued to liaise with Bakpak Freo through the COVID period and presently were in negotiations over terms, the proposed lease, “considered to be exempt from a competitive leasing process due to it aligning with the criteria above”.
The City Ward Cr questioned this alignment: “I feel this might need further consideration because what we’re actually offering is a 15 year lease under terms that are determined in a very short time frame of COVID conditions and that to me doesn’t necessarily align. It might, but I would like to understand it further before making that decision.”
She said Cr Archibald’s amendment, “goes some way to addressing my fears, well concerns, but there also was a further note circulated by Matt Hammond (Manager, Economic Development and Marketing) at 4.57pm today (February 24) that talked more to the point that I wouldn’t have wanted included in there that was the direct reference to the circumstances in which we are making this decision because I don’t think we would normally make this decision except for the fact that we are in unprecedented times”.
What exactly did Mr Hammond ‘circulate’ and to whom? And what ‘circumstances’ is Cr Pemberton referring to? Did she share them with elected members?
(Caution readers, councillors’ comments below are their actual words).

Double standards

EAST Ward Cr Groome, in support of Cr Pemberton’s deferral, said approval of the officer’s recommendation might disadvantage other City tenants, “because it commits us to a rental deal with one tenant beyond the end of March. We haven’t contemplated as a business whether that same commitment is available to other tenants. I think it has broader consequences than the matter we are considering. I had asked staff questions about that and I accept there wasn’t enough time to respond, but my preference is that this gets deferred and that it get considered in the broader context of other people who lease similar premises from us”.
The acting CEO responded a market review based on councillors’ concerns would take some time, elected members (except Cr Vujcic) preferring to support Cr Pemberton’s deferral (seconded by Cr Doug Thompson) based on last-minute ‘additional’ correspondence she received about Bakpak’s proposal, which appears not to have been shared with the CEO or elected members. The deferral moved by Cr Groome and seconded by Cr Bryn Jones was supported by all councillors except Crs Mofflin and Fitzhardinge.
Cr Pemberton said: “This was about the context in which we are considering this decision I guess and around recognising that because of COVID and the implications to do with not only with the wider economy but also international travel and interstate travel even, means we are really in an unusual kind of circumstance that potentially does actually warrant a justification of the reduced rent even though that would therefore make it not comply with our leasing policy. That said, I would hope that the council would support this amendment because I think putting this into our decision means that it’s very clear about the thinking behind the decision being made tonight. I feel this might need further consideration because what we’re actually offering is a 15 year lease under terms that are determined in a very short time frame of COVID conditions and that to me doesn’t necessarily align. It might, but I would like to understand it further before making that decision.”
Cr Frank Mofflin asked whether Bakpak, in the absence of COVID, would be exempt from the leasing policy as recommended by the officers, adding the business was doing fine before COVID.
Cr Pemberton struggled to find an answer, the acting CEO pointing out to her there could be other circumstances to consider besides COVID.

Bending COVID rules

ACTING Mayor Andrew Sullivan blamed State Government COVID legislation for having forced council to deal with the “situation” over Bakpak’s proposed lease.
The South Ward Cr who ‘sub-let’ space to tent city organisers at his Packenham Street office, said: “I view it a little differently to the way the wording uses it. The tenant, the lessee, is obliged through a lease to pay an amount which I would consider to be market value and it is only the overriding legislation that is reducing that amount. The amount we would normally look at is the amount that is written in the lease. The question for us would have been is that amount still reflective of market value? The fact that during the COVID period it is reduced because of rules which override those conditions is the reality of it so there are a number of ways to actually put a lens on that conversation. I’m quite happy to see that lens, but there are other ways of considering it.”
Cr Fitzhardinge said she fully appreciated the governance requirements for the City to, “do this right and not, you know, breach anything that would hold us …. I am feeling a little bit though like this is a business that has been severely impacted by COVID. They are a backpackers, it doesn’t get much worse than that”.
She said Bakpak was offering to, “spend some money to turn their business into something else so that they keep their doors open during a period when I think our number one priority is to keep the doors open”.