What is the $58 million ‘war chest’ being eyed for city projects?

Saturday, 8 July 2023

The aim is for the investment fund to “provide an ongoing return to the citizens of Hamilton,” the city council says.

EXPLAINER: It was sitting at just a shade under $58 million at last count.

The city council’s Municipal Endowment Fund (MEF) came up recently during economic development committee discussions on the push for a new four-star hotel in central Hamilton.

Heavyweight political pressure is being applied to getting quicker progress on such a project.

Eyeing MEF opportunities - economic development committee chairperson Ewan Wilson has floated the idea of the Municipal Endowment Fund helping bankroll a new four-start hotel for Hamilton.

Economic development chairperson Ewan Wilson said the MEF - which is overseen by his committee - could be willing to put in equity and land to help get things cracking.

What exactly is the MEF and what does it do?

The council’s strategic property manager Nicolas Wells said the MEF is an investment fund intended to provide an ongoing return to the citizens of Hamilton.

“MEF is our tool for investing in commercial property, including land for future developments, property development, joint ventures and equity partnership.”

Through such investments, the MEF generates income that is used to reinvest back into the fund or to benefit Hamiltonians by increasing value through development of council-owned property.

Income is not used, however, to fund activities under the the council’s long-term plan.

When was the MEF set up and why?

The MEF was originally established when land came to the Hamilton City Council, as successor to the Hamilton Borough Council, from a Crown grant in the late 1870s.

Some of the projects it has supported over the years include Pukete Industrial Estate, Downtown Plaza, the BNZ Building and Novotel Hotel.

The development of Hamilton’s four-star Novotel Hotel was one of the projects that’s gained from Municipal Endowment Fund support in the past.

How much is in the MEF at present?

The latest figure reported to the committee was $57.98 million in May.

Where did that funding come from?

Firstly, the MEF receives ground leases from various properties where council owns the land, does not own the controlling interest, has no strategic requirement for the land, and is unable to use the land for any purpose.

“Typically, this asset class returns a low yield,” said Wells.

Downtown Plaza was one of the past projects supported by the Municipal Endowment Fund (MEF).

“Council has previously encouraged lessees to freehold these properties to allow the council to exit from legacy arrangements and, more importantly, free up council’s capital for investment in higher yielding property assets”.

Secondly, Municipal Investment properties are fund property assets purchased to generate the maximum possible yield or to secure future development opportunities. They include two industrial properties, and two suburban shops.

Thirdly, a Municipal Endowment Reserve is invested in term deposits and mixed funds. The reserve is invested in accordance with an independently designed framework that is intended to diversify the investment portfolio, support liquidity, and preserve capital over the long term.

What projects are being actively considered for MEF funding?

The council says it’s actively considering a range on investments for the MEF.

“These are at various stages of investigation and negotiation and remain commercially sensitive,” said Wells.

“Council is always open to new opportunities for investment that meet the criteria of the MEF, support the growth of Hamilton and provide for community and social outcomes.”