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WKCD – a brief history

WKCD – a brief history. See http://en.wikipedia.org/wiki/West_Kowloon_Cultural_District 1998 HK Tourism Board (chairman Selina Chow 1996-2007) proposed to Legco that cultural and arts exhibitions...needed 1998 Tung Chee Hwa proposed the WKCD project Stage 1 – 2001 design competition

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WKCD – a brief history

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  1. WKCD – a brief history • See http://en.wikipedia.org/wiki/West_Kowloon_Cultural_District • 1998 HK Tourism Board (chairman Selina Chow 1996-2007) proposed to Legco that cultural and arts exhibitions...needed • 1998 Tung Chee Hwa proposed the WKCD project • Stage 1 – 2001 design competition • Stage 2 – 2004 ( when Donald Tsang was CS) IFP: Invitation for Proposal from developers - much criticized on: 1. the single packaged development approach 2. giant canopy 3. excessive commercial property development • Stage 3 – 2008 Legco funded the WKCD Authority $21.6 billion

  2. Stage 1: 2001 Design Competition winner: Norman Foster

  3. The Hong Kong Arts Development Council (ADC) • ADC Chairman Mr. Darwin Chen in 2004 • Proposed to Desmond Hui, a WKCD financial study at HKU

  4. An Academic Financial Study • ForThe West Kowloon Cultural District • FOR DISCUSSION • Commissioned by • The Hong Kong Arts Development Council • Written by • Wong, Kwok-Chun; BSc(Building Studies), BBuilding, PhD (HK); MRICS; MHKIS; Department of Real Estate and Construction • and • Hui, Desmond C.K; B Arch(Cornell); M Phil, PhD(Cantab); OAA; MRAIC; HKIA; RA; Department of Architecture • of • Centre for Cultural Policy Research • The University of Hong Kong • 10 May 2004

  5. To build this, we’ll need $25.1 billion: total development cost

  6. The $25.1 billion Total Development Cost: *Development profit depends on property prices.

  7. To run the Arts & Cultural facilities, we’ll need: A Trust Fund of $11.4 billion for generating income to cover operating deficits

  8. Where would this magic $11.4 billionTrust Fundcome from?

  9. The Commercial Portion’sMarket Value: $36.4 billion LESS its development Cost: $11.8 billion The Commercial Portion’s Land Value: $24.6 billion

  10. Basis of this $36.4 billion Commercial Portion Market Value

  11. This $24.6 billion Commercial Land Valuewould pay for:

  12. Would $11.4 billion be sufficient? * Government principles are primarily the LCSD’s. ** Commercial denotes “Quasi-Commercial” principles – ticket pricing policies as those of LCSD’s.

  13. Detailed Operations

  14. Alternative Market Scenarios

  15. Stage 2: 2004 Invitation for Proposals 3 major proposals from developers

  16. 1. Dynamic Star (Cheung Kong)

  17. 1. Dynamic Star – the team

  18. 2. World City (Henderson)

  19. 2. World City – the team

  20. 3. Parc (Sino, Chinese Estates, Wharf)

  21. 3. parc – the team

  22. Stage 2 –Invitation for Proposal – 2005 Rafael Hui’s “solution”

  23. Stage 3 – project completely re-viewed in 20062008 Legco funded $21.6 billion to WKCD Authority Specialist Advisor to the Subcommittee on West Kowloon Cultural District (WKCD) Development for the study on The Financial Aspects of the WKCD Project for the Legislative Council CommissionFinal Report 21 May 2008Presentation on 24 may 2008by K C Wong, K W Chau, S K Wong, and P Yungof Versitech Limited ( a wholly owned subsidiary of the University of Hong Kong)

  24. contents • 1. a financial overview • 2. scenarios of private sector involvements • 3. on “design and build” • 4. capital, on-costs and operating costs • 5. risk and sensitivity analysis • 6. management organisation • 7. financial sustainability • 8. the question of M+ • 9. on RDE: retail, dinning, and entertainments • 10. key parameters to be monitored • 11. funding priorities • 12. summary

  25. GHK’s Financial Summary

  26. GHK’s Financial Summary

  27. 1. a financial overview

  28. 2. scenarios of private sector involvements * Package A: MPV + hotel 2,3 + RDE; B: MT1+ BBT2,3 + hotel 1 + RDE; C: residential, others A&C + transport, communal facilities

  29. 3. on “design and build”

  30. 4. capital, on-costs, and operating costs

  31. 5. risk and sensitivity analysis: any contingency plan?

  32. 6. management organisation

  33. 7. financial sustainability • *3.378 billion = 20.639 billion x (1/1.04)^50 + (1/1.04)^100+… • 20.639 billion = 21.568 – 0.873 billion (for museum collection) - 0.056 (for land cost of off site storage) • in 2008 NPV

  34. 8. the question of M+ : is it like Pompidou? * Long collection history achieved “through the generosity of artists such as Picasso, Braque, Matisse, Chagall and Brancusi, which had hitherto been passed over by other institutions.”

  35. 8. the question of M+ (cont’d): the Guggenheim model * Statement still available on the web: http://www.guggenheim.org/press_releases/release_140.html

  36. 9. on RDE: Retail, Dining and Entertainment

  37. 10. Key parameters to be monitored

  38. 11. funding priorities

  39. 11. funding priorities (cont’d)

  40. 12. executive summary • This report assumes the principle that the WKCD should be financially self sufficient and financially sustainable within the 40 hectares of land. • The Method of comparing Scenarios of private sector involvement is questionable. Scenarios 1B and 2 are not sufficiently realistic to allow meaningful comparisons. Despite greater private sector participation in, no additional efficiency gain has been allowed for. • "Design and Build"is not a suitable procurement method for M+ and possibly not the best option for other core arts and cultural facilities as well. • Unit construction costs are within a reasonable range. On-costs are, however, higher than conventional. • The Financial Advisor’s (FA) sensitivity analyses have not covered the financial implications of risks in investment returns and in construction cost escalation. There are also no contingency plansfor the worse cases scenario.

  41. 12. executive summary (cont’d) • There is no fund set aside for major renovations or re-constructions after 50 years, beyond which the WKCD may not be financially sustainable. An extra saving of $3.38 billion on capital and operating costs, equivalent to 16% of the $21.6 billion seed fund, is needed. • Under the FA’s operating assumptions, M+ would cost $10.7 billion to construct and operate for 50 years. By 2059, M+ would account for 89% of the WKCD’s yearly deficit. M+ might become a long term financial burden of the WKCD. • According to the information provided by the FA so far, should M+ be run by an international operator, the potential saving of $4.8 billion, in very crude terms, could be as high as 22% of the $21.6 billion seed fund. • RDE is the life line of the WKCD. Yet compared to the financial and operating details for Core Arts and Cultural Facilities (CACF), those information provided for RDE are clearly insufficient. • To build up the financial strength of the WKCD, one has to cut spending and earn more. It’s worthwhile to consider options for (a) reduction of on-costs; (b) a more efficient operation mode of M+; and (c) an effective business plan for RDE facilities, are essential.

  42. Offices at WKCD?

  43. Offices at WKCD - Cont’d

  44. Cost data • Davis Langdon & Seah International, Current Building Cost Information Data in Hong Kong, Quarterly; or • http://www.dlsqs.com/ice/index.jsp?mod=newsview&showmodonly=newsview&op=view&catid=71

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