Sydney Goes for Glitz at Barangaroo

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Good article that shows how laid back Aussies are including iconic developments...

Sydney Goes for Glitz at Barangaroo

Lend Lease

A rendering of Barangaroo in Sydney, not including a proposed hotel-casino
After a global design competition in 2006, Sydney authorities chose a community-friendly complex of public parks, promenades and low-profile buildings for a 54-acre tract of former docklands not far from the city's famed Opera House.

Seven years later, work has begun on the 6 billion-Australian-dollar (US$6.21 billion) Barangaroo project in Darling Harbour. But it is going to wind up looking much different than the original vision.

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To the chagrin of original backers, the first three structures under way are office towers soaring as high as 49 stories, creating about a third more office space than originally planned and walling off the precinct from the city. Instead of the public-use focus, the plan now includes more glitzy apartments and may even add a combined hotel and high-roller casino—proposed at the 11th hour by billionaire businessman James Packer.

The emerging project came out of a bitter debate over two different views of Australia's largest city. The winning vision is a cross between London's successful Canary Wharf office district and Marina Bay in Singapore, where major companies have established offices next to a Sands casino-resort.

The approval of the new plan over the original partly reflects increasing pressure on business and government leaders in Australia to find new sources of growth. The country's economy successfully sidestepped the economic downturn thanks to surging demand from Asia for natural resources like iron ore and coal. But growth is now beginning to slow, similar to major trading partners such as China, prompting leaders to look for other ways to stoke the economy.

Critics complain that the transformation of the Barangaroo project illustrates the sway that business interests have in Australia. "If you want to know what's happening in New South Wales, just follow the money trail," says John McInerney, a longtime critic of the Barangaroo project and former Sydney city council member.

But proponents of the current Barangaroo plan say the original one simply wasn't commercially viable. Sydney has only 27 million square feet of office space, compared with 31 million in Hong Kong, according to Cushman & Wakefield, and nearly half of the buildings in Sydney's central business district are more than 30 years old.

The casino would lift the city's after-hours appeal to wealthy Asian visitors, they add. "VIP gaming is essential to make this project commercially viable," says Todd Nisbet, a spokesman for Mr. Packer's Crown Ltd., CWN.AU -0.08%which owns casinos in Melbourne and Perth, and has casino stakes in the U.S., U.K. and Macau.

The docklands were earmarked for development in 2003, as increasingly bigger container ships meant the port couldn't compete with more-modern facilities nearby. Named Barangaroo after a powerful indigenous Aboriginal woman from British colonial days, the site was designated a "state-significant development," allowing it to bypass city planning laws that call for low-rise development near the harbor.

Moderation was a major theme in the early planning process. Hill Thalis Architecture beat out more than 130 firms in a design competition hosted by the state government. The project's aim: to transform the ugly concrete expanse into lush gardens, playing fields and slender office towers designed to merge with the cityscape.

Following a public exhibition of the winning design, the concept plan was approved by authorities in 2007. The following year, however, as tax revenues fell sharply amid the deepening turmoil in world financial markets, the government proposed adding nearly 1.3 million square feet of commercial development.

Lend Lease Ltd., LLC.AU +1.79%a Sydney-based developer, was selected in 2009 for the commercial development. Around the same time, the government announced it wouldn't proceed with the Hill Thalis design.

"The Barangaroo project is a disaster for Sydney—a disaster that will mar the city's western face for generations to come," says Philip Thalis, a principal of the architecture firm. "The public interest is completely subverted for private interests."

The main opposition groups, including Australians for Sustainable Development, say they don't plan any further legal action. "Given the history of the whole thing, we're a bit cynical about the opportunity to fundamentally change things now," says Mr. McInerney, the group's leader.

The office towers under development have been presold. Canadian pension fund CPP Investment Board invested A$1 billion in the project, its largest single real-estate transaction globally. Two of the three towers have been mostly leased, with Westpac Banking Group, the country's second-largest bank, accounting firm KPMG, and Lend Lease as major tenants.

Office demand is strong, property experts say. Only a handful of new developments have been completed in recent years, pushing down vacancy rates to 7.2% from an average 10% in the past decade. "The vacancy rate in the product we're selling is zero," Lend Lease's managing director for Barangaroo, Andrew Wilson, says.

Meantime, the fight over the casino is continuing. Lend Lease last year entered a two-year exclusive deal with Crown to develop a 350-room luxury hotel, but planners are still determining where to locate it in the project.

Mr. Packer, 45 years old, a Sydney-based media scion with a penchant for super-yachts, and others at Crown point to the success of Singapore's Marina Bay complex.

One of Crown's big opponents is Echo Entertainment Group, EGP.AU +1.40%which has exclusive rights to run Sydney's only casino. Echo has applied to protect its rights, and an independent panel is considering the matter. An Echo spokesman says it is too early to discuss Echo's plans if it loses its bid.

Crown owns 10% of Echo and has sought regulatory approval to increase its stake to 25%, fanning speculation that a takeover could settle the license dispute.

That effort appears to some as "a bit of a hedge" to make sure Crown will be able to move forward with its casino, says Will Seddon of White Funds Management, which holds shares in both companies. Mr. Packer "has a fair bit of weight around town," he adds.

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