cabinet 4 november 2013
TRANSCRIPT
Cabinet 4 November 2013
Future Brixton: Somerleyton Road Project – Delivery Strategy
Coldharbour Ward
Cabinet Portfolio: Report authorised by:
Councillor Peter Robbins Cabinet Member for Housing and Regeneration:
Sue Foster Strategic Director Delivery
Executive summary
The Future Brixton: Somerleyton Road Project report (86/13-14) was presented to Cabinet on 8 July 2013 and all of the recommendations were adopted including approval to procure a development partner using either the GLA’s London Development Panel or a Council run Restricted Procedure. The report stated that further analysis should be undertaken to determine which approach would best meet the aspirations and objectives of the stakeholders as understood by officers. This further analysis included a review of legal structures, procurement routes, funding packages and delivery models. The further analysis is still on-going. However, in order to allow the project to proceed before the final decision is made on the eventual legal structure; it is now proposed to separate the development into three distinct stages. This report seeks authority to commence procurement of a development manager and a design team to enable completion of the first stage, to obtain planning consent for the development site. It is intended that we will seek Cabinet approval to enable the completion of the development after further analysis on the funding options and the ownership structure has been completed. At present the preferred option is to progress the project using a Council design and build approach where all or the majority of residential units will be rented accommodation. This staged approach will allow the development to move forward without final decisions on this preferred option having to be finalised now. The preferred option would allow Lambeth to retain ownership of the land, the new homes and the new community and commercial buildings as well as provide a significant proportion (40%) of new affordable homes at Council rent levels. The further analysis on the funding options and the ownership structures is intended to include work that will support the long term aspiration of Brixton Green to put in place
either a Community Development Trust or a Housing Cooperative(s) to own and / or manage the development. The Council recognises that there is an opportunity to do things differently at Somerleyton Road and to deliver a flagship project cooperatively. The approach outlined in this report will be shaped by local people, be unique to Brixton and give us the best chance of meeting people’s aspirations. Lambeth will directly procure the skills and expertise necessary to deliver the first stage of the project; this will include the procurement of a development manager and a design team. If the further analysis supports the preferred option the Council will also become directly involved in the delivery stage of the development, which would include directly engaging the building contractor. This report seeks approval to procure the development manager and the design team to complete the first stage of works. Summary of financial implications The report seeks a capital investment of £1m to procure a development manager and a design team for the first phase of work. The funding will come from the existing capital allocation agreed at July Cabinet under the Future Brixton: Somerleyton Road Project Part II report (86/13-14). A bespoke financial model will be developed in the first stage of the project, which will be used to help inform the funding and legal structure for both the delivery stage and long-term management and ownership.
Recommendations 1) To note the Council’s staged approach to delivery of the development and to
approve the first stage of the approach as set out within this report;
2) To approve the re-allocation of £1m of existing capital allocation to procure a development manager and a design team using a Council run restricted procedure.
3) To note that a steering group, Chaired by the Cabinet Member for Housing and Regeneration and containing representatives from Brixton Green, Ovalhouse and the Council is established to act as the client for the development manager and the design team.
4) To note that the steering group will also lead on the further analysis for the funding and legal structures for the development. When this further analysis is completed a further report will be brought to Cabinet seeking authorisation for the next stages of the development. This further report will also seek authority to enter into legal agreements with Ovalhouse Theatre to secure both their future in the development and to secure the Council interest in the existing Ovalhouse Theatre site.
Consultation
Name of consultee
Department or Organisation Date sent Date response received
Comments appear in report para:
Internal
Sue Foster Strategic Director Delivery 02.10.13
Rachel Sharpe Commissioning Director 02.10.13
Mike Pocock Delivery Director 02.10.13
Adrian Smith Commissioning Director 02.10.13
Guy Ware Strategic Director Enabling 02.10.13
Andrew Pavlou Principal Lawyer Governance 04.10.13 10.10.13
Hamant Bharadia Finance Business Partner 04.10.13 06.10.13
Daniel Omisore Strategic Finance 02.10.13 04.10.13 Throughout
Christian Fleming Strategic Finance 02.10.13 04.10.13 Throughout
Tim Stephens Democratic Services 07.10.13 07.10.13 Throughout
Cllr Robbins Cabinet Member for Housing and Regeneration
02.10.13 04.10.13 Throughout
External
Stephen Jordan Brixton Green 02.10.13 04.10.13 Throughout
Deborah Bestwick Ovalhouse 02.10.13 04.10.13 Throughout
Report history
Decision type: Key decision: reason
Key decision (first entered on Forward Plan 30.08.13)
2. Expenditure, income or savings in excess of £500,000; AND 3. Meets community impact test
Authorised by Cabinet member:
Date report drafted:
Date report sent: Report deadline
See above 02.10.13 14.10.13 17.10.13
Report no.: Report author and contact for queries:
191/13-14 Neil Vokes, Regeneration Project Manager
020 7926 3068; [email protected]
Background documents Cabinet - 8 July 2013 Future Brixton: Somerleyton Road Project (Report 86/13-14) http://www.lambeth.gov.uk/moderngov/documents/s58240/07a%20Somerleyton%20Road%20PART%201.pdf
Appendices
Appendix 1 - Equalities Impact Assessment
Future Brixton: Somerleyton Road Project – Delivery strategy
1. Context
1.1 The Future Brixton: Somerleyton Road Project report (86/13-14) was presented to Cabinet on 8 July 2013 and all of the following recommendations were adopted.
1) To note the feasibility study produced by Pollard Thomas Edwards architects to assess the capacity of Somerleyton Road.
2) To agree the procurement of a development partner using either the GLA’s London Development Panel or a Council run Restricted Procedure.
3) To delegate authority to the Executive Director for Housing, Regeneration and Environment in consultation with the Cabinet Member for Housing and Regeneration to approve the Invitation to Tender documents and to shortlist the bidders prior to issuing the Invitation to Tender.
4) To note the accompanying Part II report
5) To note the estimated project delivery costs.
6) To delegate authority to the Executive Director for Housing, Regeneration and Environment and Head of Legal Services to either purchase 16-22 Somerleyton Road or enter into an Option Agreement that secures the inclusion of the property at 16-22 Somerleyton Road as part of the proposed development site.
7) To agree the making of a Compulsory Purchase Order for the development site outlined in red on the plan at paragraph 2.2 to ensure delivery of the project as a comprehensive development.
8) To note the draft Heads of Terms at Appendix 1 of the Part II report between the Council and Christ Church Oxford United Clubs trading as the Ovalhouse Theatre and to support their application to the Arts Council for grant funding to support the build costs of the new arts and cultural facility.
9) To delegate authority to the Executive Director for Housing, Regeneration and Environment and Head of Legal Services to enter into a legal agreement, based on the draft Heads of Terms, with Christ Church Oxford United Clubs trading as the Ovalhouse Theatre to commit them to disposing of their existing site in Kennington, as part of their contribution to the building of the new theatre and for the Council to grant them a long-lease of the proposed new Theatre on completion of construction.
10) To delegate authority to the Executive Director for Housing, Regeneration and Environment and Head of Legal Services to enter into Agreements of Intent or Agreements to Lease with tenants for the future development.
1.2 Before commencing the procurement of a development partner, it was requested that further analysis was undertaken to help improve the understanding of the delivery models available to the Council and how these can be used to best meet the aspirations and objectives of the stakeholders.
1.3 From the many conversations Brixton Green, Lambeth Council and Ovalhouse have had with local people at events held across Brixton, it is clear that whilst
there are many different views as to how Somerleyton Road should change, there are some shared opinions, which come up time and time again:
•••• People want to see as much affordable housing as possible at council rent
levels;
•••• People want local jobs and training opportunities for young people;
•••• People don’t want to see the land sold off; and
•••• People want a greater say over Somerleyton Road now and in the future;
1.4 Taking on board these views and working within the constraints and restrictions which we face, the partnership of Brixton Green, Lambeth Council and Ovalhouse has looked at a number of ways in which to deliver the project. That work has culminated in this report recommending to Cabinet a Council design and build approach where all or the majority of residential units are rented.
1.5 Members provided a steer, given at a series of workshops facilitated by Pinsent Masons and attended by the Cabinet Member for Housing and Regeneration, Councillor Pete Robbins; the Cabinet Member for Finance and Resources, Councillor Paul McGlone; and the Deputy Cabinet Member for Cooperative Council Delivery, Councillor Jane Edbrooke, that the Council is keen to see a scheme on Somerleyton Road that is delivered in line with the cooperative values of the Council, establishes a housing cooperative to either own and/or to manage the properties and that in addition to affordable homes at Council rent levels, contains a significant proportion of intermediate and private rented units. This is achievable under the preferred option of a Council led design and build approach.
1.6 The option of a straight land sale was discounted at those workshops as whilst the option would provide the Council with a capital receipt it would not deliver the broad scope of cooperative elements such as the new theatre, the target rent housing nor the housing cooperative(s). This option will however be used as a baseline financial comparator for the project.
2. Proposals and Reasons
Project Aspirations and Objectives
2.1 These aspirations and objectives have been developed and refined by the Council following a series of discussions with our partners Brixton Green and Ovalhouse, as well as conversations with local residents at the recent Walk and Talk event held in August 2013.
2.2 Each of the delivery models has been assessed against the project’s aspirations and objectives which are:
•••• Bring Ovalhouse Theatre to Brixton;
•••• Maximise the amount of housing which is affordable for local people;
•••• Collaborative working with the local community and securing a long term stewardship role - Cooperative Housing/Community Development Trust;
•••• Build high quality, sustainable buildings and support sustainable communities;
•••• Employment, training and community uses shaped by local residents;
•••• Improving community safety;
•••• Retain the heritage assets (i.e. the mural and the façade of Carlton Mansions);
•••• Deliver the project in a timely fashion;
•••• Deliver a financially viable scheme which represents value for money for the Council and which repays in full the up-front capital investment;
•••• Build capacity to bring forward other development schemes within the Council.
Analysis of Delivery Models
2.3 Three delivery models have been explored, one of which is based on a 100% rental model whereby the associated funding is supported by the eventual rental income stream generated from the residential units. The second approach is a traditional development agreement with a private development partner funding the scheme through the sale of private units and the third approach is a straight land sale with a planning brief – which as mentioned earlier has already been discounted.
2.4 A further option which was based on the Council entering into a development agreement with either a developer or a register provider to deliver the scheme using a rental model has been explored. The option has not been pursued further as soft market testing indicated that the same development risks still remained with the Council and yet the Council had less control. The option could be revisited however if there is a way in which some of the risks can be transferred onto the developer and or register provider.
PREFERRED MODEL: Council design and build (with 100% rental)
2.5 The Council procures a development manager and a design team, via a Council run restricted procedure, to work on the client side, securing a successful planning consent for the site. The initial contract term will be up until the end of the first stage of the project (i.e. planning consent secured) with an option to extend the commission to include the second and third stages (construction and management and income generation).
2.6 This staged approach to procurement will allow the Council to review the approach and if it considers appropriate to revert to one of the other delivery models.
2.7 The architects for The Ovalhouse will be novated to work with the Council’s design team. This should give The Ovalhouse more control over the design of the new theatre and greater control and certainty over build costs.
2.8 The development manager and the design team would work with the Council and its partners to drive forward the project. Their brief would include:
STAGE 1
•••• Developing the project brief with partners and the local community;
•••• Further development of a benefits case for the preferred delivery model;
•••• Continued financial modelling and determining the most cost-effective way of funding the project;
•••• A risk and return profile which includes scenario and sensitivity testing;
•••• A design optimisation process;
•••• Whole life costings including any revenue implications;
•••• Detailed specification for the scheme;
•••• Support to formulate the development of an operational model;
•••• Secure planning consent for the site;
STAGE 2
•••• Procurement of a contractor;
•••• Management of the contractor and build;
•••• Act as client representative during development;
•••• Monitor the quality of and oversee construction;
•••• Hand over to Lambeth on completion;
2.9 A steering group has been set up to oversee the delivery of the project. The steering group will be responsible for procuring the development manager and the design team, acting as the client and ensuring that decisions are taken in an open and transparent way. It will also lead on the further analysis of the funding and ownership structures for the delivery and long-term management and ownership of the development. The group is chaired by the Cabinet Member for Housing and Regeneration and consist of representatives from the Council, Brixton Green and Ovalhouse. A wider stakeholder group is to be established to enable more people to review the information available and better understand the proposals. A key task for the steering group will be to ensure that the cooperative vision for the project is delivered.
2.10 The development manager and design team would deliver the project on behalf of the Council for a fee. The fee would be linked to performance, milestones and deliverables and thus incentivise both the development manager and the design team to perform strongly.
2.11 It is proposed that some enabling services such as the preparation of Stage E drawings, writing of specifications, and legal documents etc. will be undertaken in
advance of the further Cabinet report in order to minimise the delay in moving to procurement of a contractor should Cabinet approval be forthcoming.
2.12 To reduce the risk exposure to the Council it is recommended that the project is split into three stages:
i) securing planning consent;
ii) construction; and
iii) management and income generation.
2.13 It is recommended that there is a pause between the first two stages to allow for further analysis of the benefits case, the financial modelling and the risk / return profile of the project and it is intended that the contract for the development manager and design team will reflect this. Should this additional due diligence demonstrate that the Council design and build approach represents too great a risk to the Council or is not financially viable then the alternative delivery models will be revisited. It is intended that a further report is brought before Cabinet recommending the way forward for the second and third stages.
2.14 This Cabinet report therefore assumes that the £1m requested will enable the steering group to complete the first stage – securing planning consent which includes the further analysis of the business case. The preferred model currently assumes that the costs to deliver stages two and three will be funded by borrowing. However, a decision on this will only be made after further analysis of the delivery models has been completed.
2.15 Whilst the assumptions used in this report are based on the Council forward funding all stage one costs (development manager and design team), soft market testing has indicated that some consultancies may be prepared to consider alternative remuneration models which would see them deliver some of the early stage elements at risk conditional on them being guaranteed work if the development scheme proceeds. This alternative remuneration model could be used if the costs for stage one over run; rather than the Council increasing the funding package the development manager and/or architectural practice could take the additional costs at risk.
2.16 The main output from the first stage of the project will be a detailed planning consent for the site which has been worked up in partnership with local stakeholders. The planning consent must represent a financially viable and deliverable scheme which adequately meets the aspirations and objectives of stakeholders. The development manager will bring added value to this stage of the process by optimising the design to maximise efficiencies and to provide guidance on likely funder requirements to safeguard fundability.
2.17 The development manager will continually monitor and model the financial elements of the project so that at the stage planning consent is granted; the Council can pause, review the benefits case for the delivery model and re-test the market before progressing to the construction stage.
2.18 The bespoke financial model will enable this to be a transparent and informed decision making process involving the steering group and its partners. We aim to model various scenarios to demonstrate what can and can’t be delivered. For example we will model a scenario where 100% of the residential units are let at council rents. The expectation is that the model would show that this scenario would not generate a net rental income stream sufficient to cover the annual repayment figure on the related borrowing.
2.19 Once planning permission is granted and the development manager has completed the tasks up to but not including the procurement of a building contractor, set out in paragraph 2.8 above, the Council will finalise the proposed funding, legal structure, and management arrangements for the scheme. At this point a new land value will have been established for the site and it is anticipated that the increase in value will be more than the £1m capital investment required to secure the planning consent. The upfront investment will have been matched by the increase in value of the site and as such, it could if necessary, be recouped through disposal. At this point a further report will be brought back to Cabinet seeking authorisation for the proposed second and third stages.
2.20 Under the preferred option the next step will be for the development manager to procure, on behalf of the Council, contractors to build out the scheme to the agreed specification and design. The procurement brief for the contractor will be developed by the development manager to allow the procurement process to best meet the requirements of the chosen delivery route. This could include the use of a guaranteed maximum price or an incentivised risk and reward contract for the construction based on the detailed planning permission. The development manager will manage the contract. The Council could include build-cost savings share arrangements to incentivise good performance. At the same time the Council will enter into a funding agreement with a funder who will provide the total development financing package. The funder could be from the private sector or the Council may decide to prudentially borrow.
2.21 The Council is committed to establishing a long term stewardship role for the local community and as part of this Brixton Green is to commission legal advisors to provide advice on the form of an ownership and management vehicle for Somerleyton Road. The advice will focus on how the vehicle as an entity can develop to take on the long-term management and maintenance of the completed scheme as well as potentially owning the assets, excluding The Ovalhouse Theatre and to look at the ongoing holistic regeneration of Somerleyton Road.
Council design and build financing
2.22 A funding model based on a 100% rented development has been explored since it would enable the maximum number of sub-market rental homes under cooperative management arrangements.
2.23 In terms of the first stage of the project, the Council will be required to cover the fees for the development manager, the design team and the costs for securing planning consent for the site. The cost of this is estimated to be up to £1m. Whilst this initial investment is at the Council’s risk, by securing planning consent for the site, a new land value will be created which will protect the Council’s financial position as if necessary the Council could dispose of the site and recoup the investment.
2.24 It is presently proposed that the costs for the second stage (i.e. the development costs – build costs, contractor margin, contractor costs, professional fees etc.) will be funded either by prudential borrowing or by securing a competitive funding package from an annuity fund. The borrowing will be paid back using the rental income stream from the completed residential properties over a 30 to 40 year period. The total development costs for the PTEa designed scheme used for testing viability purposes are estimated to be approximately £60 million.
2.25 If the Council does decide to secure private sector funding then this does not require a fully regulated OJEU procurement as funding is outside the scope of the Public Procurement Regulations. However, it is likely that the Council would want to see some form of funding competition or beauty parade to ensure value for money.
2.26 Alternatively, it may be found in practice that many ‘pure construction’ partners would also be willing to bring a funding offer with them, so the procurement could be led from the construction point of view. This would avoid the need for two procurement exercises although may not give the best value for money.
2.27 EC Harris has modelled 3 scenarios for the rental model to demonstrate the impact of varying the mix of affordable rents on the amount of borrowing the net income stream could support. They have assumed 283 completed units built over approximately 54 months and have modelled cashflows over 31.5 years. The 1.5 years comes from the assumption that there will be no income for the first 18 months.
2.28 The target rent levels are taken from the Myatts Field regeneration project and the private rent levels are median rent levels for Brixton taken from the GLA’s rental website. These rents are used for modelling purposes only.
Flat size Target Rent (£ per week) Private Rent (£ per week)
1 Bed £94 £270
2 Bed £109 £335
3 Bed £123 £435
2.29 The projected net income streams are as follows:
60% Target Rent 40% Private
50% Target Rent 50% Private
40% Target Rent 60% Private
Gross rental income £2.86m £3.18m £3.48m
LESS: letting and maintenance costs pa
£0.49m £0.54m £0.59m
LESS: voids £0.09m £0.11m £0.12m
Net rental income £2.28m £2.53m £2.77m
Annual repayment £2.32m £2.28m £2.27m
2.30 The EC Harris model demonstrates that based on a scheme of 283 units (60% at private rent and 40% at target rent) and a capital borrowing of £50m the net rental income will be £2,767,095 and the annual repayment figure will be £2,267,551. Any ‘Surplus rent’ (the difference between the net rental income and the repayment figure) could be shared between the Council and the housing cooperatives to be reinvested in housing services or delivery.
2.31 The above has been modelled on borrowing from an annuity fund with an RPI linked increase every year however the intention is that the uplift would be market tested and compared to prudential borrowing. The rental repayment figure will vary if the loan repayment term is shortened or extended, the equity sum borrowed is decreased or increased, or there are movements in the gilt market prior to the agreement to borrow being signed off.
2.32 The rental model offers the following benefits:
•••• All the new homes are retained in Council ownership (and therefore offer the option to transfer management or ownership of the stock to a housing cooperative or cooperatives);
•••• A package of flexible rents can be controlled by the Council or parameters set for the housing cooperative(s) to set their own rents;
•••• Any surplus could be reinvested elsewhere in the borough;
•••• Bespoke tenancies could be offered i.e. 5 year index-linked tenancies for private rent tenants;
2.33 However, it should be noted that soft-market testing has indicated that funders would only be prepared to lend on the basis that a full guarantee of the
4 Bed £138 £600
repayments is provided by the Council so if there ever was a rental shortfall it would need to be met from other Council resources. As the project develops the bespoke financial model will be used to run sensitivity analysis and assess the risk profile. This will be a key consideration when exploring the legal structure for management and ownership as the Council needs assurance that the rental stream will continue to meet the repayment levels over a 30 to 40 year period.
2.34 As part of the further due diligence, officers are commissioning a study of the rental market in Brixton and comparator areas to better understand both historical trends and the strength of the rental market going forward. This study will help officers understand what the chance of a rental shortfall occurring is and hence inform what level of risk is involved with accepting an index-linked rental increase. This study will also help officers understand whether any surplus income over and above the repayment levels is likely to be generated and hence help estimate how much income might be available for investment elsewhere in the borough.
2.35 There is scope to deliver a number of private sale homes on site in order to generate a capital receipt. This would reduce the number of homes that could be offered at sub-market rent through the rental approach described above. Sensitivity analysis through the financial modelling will allow the council to quantify the financial implications of these changes.
Pros
• This option gives the Council the most control and therefore the greatest opportunity to meet all of the aspirations and objectives of the project.
• Whilst the Council still retains risk (i.e. planning risk, construction risk), it is able to mitigate that risk through receiving professional advice from the private sector. Overall this approach should, if successful, offer greater value for money.
Cons
• The Council design and build approach set out above would require additional procurements as the procurement of the contractor is separate to that of the development manager and design team;
• The up-front costs of the development manager and the design team to get the scheme to detailed planning would need to be forward funded by the Council;
• Requires a mature client – the project will need to be tightly managed as changes to the scheme, particular after design milestones have passed, or delays in decision making will result in increased costs.
Set out below is a draft programme of how the Council design and build approach will progress:
Task Date
Cabinet approve the Council design and build approach
4th November 2013
Steering group formally established – first task is to sign off the procurement documents for the development manager and design team.
13th November 2013
Expression of Interest issued 20th November 2013
Sifting brief issued 2nd December 2013
Invitation to tender issued 16th December 2013
Bids received and evaluated 3rd February 2014
Contract award 21st February 2014
Development manager reviews all project documentation and agrees with the steering group a project programme, a project brief and prepares drafts of all required strategies (sustainability, maintenance and operational, construction, procurement, health and safety)
26th March 2014
Steering group commissions an inclusive process to develop the detailed designs with a bespoke financial model running alongside the design process to enable transparent and informed decision making.
2nd April 2014 – 26th September 2014
Steering group commissions an inclusive process to review the financial model so decisions can be taken on the final mix of residential and commercial units.
2nd April 2014 - 26th September 2014
Steering group commissions legal advisors to provide outline options for a community stewardship role and recommends a preferred route
Now – Nov 2014
Steering group commissions an inclusive process to further develop the community stewardship element
Apr 14 – Sept 2014
Planning Applications Committee considers the application
March 2015
Development manager recommends to the steering group a construction programme and procurement strategy for the contractor.
March 2015
Procurement of a contractor Summer 2015
Contractor reviews all project information. Autumn 2015
Construction starts Winter 2015
Post occupancy evaluation Summer 2017
Project performance review Summer 2017
Feedback Summer 2017
ALTERNATIVE OPTION: Development agreement using private sale cross subsidy
2.36 This option is included for comparison since it generates a net capital receipt from the overall scheme. It is not based on the rental model; rather the private element is for sale whilst the 40% affordable homes would be sold to a Registered Provider (Housing Association). These differences significantly change the risk profile for the project.
2.37 The approach would see the Council procure a consortium (development partner) at the outset which would include the development manager, design team and contractor. The consortium would take on planning, construction and sales risks with the development being funded through the sales of private homes, and the sale of the affordable element to a Registered Provider.
2.38 The development appraisal for this approach demonstrates that a viable scheme could be delivered which offered the Council a positive capital receipt of £1.6m (excluding project delivery costs of approximately £300k).
2.39 Whilst this approach pushes more of the risk onto a third party (the development partner) there are a significant number of aspirations and objectives which would not be met:
•••• 169 of the 283 new homes (60%) would be private market sale;
•••• The private market units would be delivered at the speed that the developer considers the market could absorb them;
•••• The affordable homes would be owned and managed by a Registered Provider, although the Council could retain nomination rights;
•••• Increased difficulty of introducing a cooperative housing model where the Council no longer has a significant interest in the land and the Registered Provider is the landlord of the affordable housing element;
•••• The developer would price in risks and include a developer margin of typically between 15% and 20% - this equates to at least £8.4m for this project;
•••• Any viability issues would result in the affordable housing element being reduced.
2.40 As a result of the above analysis, the decision was taken to explore the rental models which enable the delivery of a much greater number of sub-market rental homes.
Comparing the models: Meeting the Aspirations and Objectives of Stakeholders
2.41 The table below sets out how each of the delivery approaches discussed above meet the aspirations and objectives of stakeholders:
Council design and build (100% rental)
Development Agreement using Private Sale
Bring Ovalhouse Theatre to Brixton Yes Yes
Maximise the amount of housing which is affordable for local people Yes No
Collaborative working with the local community and securing a long term stewardship role - Cooperative Housing Yes No
Build high quality, sustainable buildings and support sustainable communities Yes Yes
Employment, training and community uses shaped by local residents
Improving community safety Yes Yes
Retain heritage assets Yes Yes
Deliver the project in a timely fashion Yes No
Deliver a financially viable scheme which offers value for money to the Council Yes Yes
Generates a capital receipt to repay the Council’s upfront capital investment No Yes
Build capacity to develop similar schemes within the Council Yes No
People want to see as much
affordable housing as possible at
council rent levels Yes No
People want local jobs and training
opportunities for young people Yes Yes
People want the Council to retain
the land Yes No
People want a greater say over
Somerleyton Road now and in the
future Yes No
Achieving Best Value
Savings through Council design and build
2.42 Savings will be realised as the Council design and build model does not include a Developer Margin (15% to 20%) nor price in risk around Planning and Construction Costs.
Development costs
Scenario 1 – Council
design and build (100%
rental)
Scenario 2 -
Development
Agreement Private
Sale
283 homes £22,340,750.00 £22,340,750.00
Wheelchair upgrades £290,000.00 £290,000.00
Abnormals underground £2,959,950.00 £2,959,950.00
Commercial, community
and cultural space £8,450,000 £8,450,000
Site assembly and planning
contributions £8,725,758 £8,725,758
sub total £42,766,458 £42,766,458
Lettings and Marketing £2,046,370.00 £2,046,370.00
Developer Margin (15%) £0.00 £8,433,080.00
Developer Management Fee £702,757.00 £702,757.00
Development contingency £6,746,464.00 £6,746,464.00
Prelims, contractor margin,
contingency £4,616,549.00 £4,616,549.00
Professional Fees and
finance costs £2,500,000 £4,816,853
sub total £16,612,140 £27,362,073
Total £61.392.738.00 £70,128,531.00
3. Finance comments
3.1 This report considers the specific financial implications of a number of delivery models and procurement routes. Comments on these financial implications are therefore included throughout the report.
3.2 However, site assembly costs are common to all possible approaches. The project was allocated a capital investment to secure vacant possession of 16-22 Somerleyton Road and to vacate and reprovide facilities for the Angela Davis depot. This investment was recommended by the Asset Management Cabinet Advisory Panel on the understanding that it would be recouped through a net capital receipt from the scheme from sales of private units. If the scheme proceeds on an alternative rental basis, this investment would either need to be repaid from borrowing, from rental income or would not be recouped at all.
3.3 This report proposes that £1m of this original allocation should now be used to fund the initial design and advisory fees for the first phase of the project (up to securing planning permission) since it is now estimated that the full sum will no longer be needed to secure vacant possession of the entire Somerleyton Road site. The increased land value as a result of securing planning permission will mean that in the event that the scheme did not go ahead as currently envisaged; the up-front investment of £1m could be recouped.
3.4 In addition, the Carlton Mansions site is an HRA asset, currently held at a gross value of £2.2m with an associated Revaluation Reserve balance of £1.71m. The asset will need to be appropriated to the General Fund prior to redevelopment and the HRA compensated for the asset exchange. An adjustment will therefore need be made to the CFR (Capital Financing Requirement) based on a certified valuation at the time of the transfer.
3.5 A bespoke financial model will be developed over the next three months to allow for continual options testing of the key project variables. The model inputs will include:
• Financial data (development) – revenue and expenditure;
•••• Financial data (long term investments) – revenue and expenditure;
•••• Programme;
•••• Accommodation and area;
3.6 The model outputs would be as follows;
• Print summary;
• Key metrics (gross and net rentals / finance requirement / margin / residual land value / build costs / IRR / NPV);
• Inflation switch to allow a current day and long-term inflated view to be assessed;
• Residential accommodation schedule;
• Sensitivity analysis;
• Phasing scenarios;
• Cashflow graph – equity / debt / return;
• Alternative delivery models;
4. Comments from Director of Governance and Democracy
4.1 The Public Contracts Regulations 2006 apply to the proposed tender and the Council is obliged to publish a contract notice in the Official Journal of the European Union if the value of the contract exceeds £173,934. There is no such duty if the estimated value falls below this threshold but the Council must comply with the Regulations in respect of the prohibition on requiring named goods and services and giving European standard precedence. The European Commissioners have issued advice saying that part B contracts and contracts that fall below the thresholds should be competitively tendered to provide fairness, transparency and to ensure that there is no discrimination against an applicant from another EU member state. It should be noted that transparency would extend to a description of the evaluation criteria and the evaluation methodology, setting out the relevant weightings, showing the range, minima and maxima or if not applicable the criteria in descending order of importance.
4.2 Approval of the Project constitutes a key decision on both financial and
community impact grounds. This decision has been published on the Forward
Plan for more than 28 days, in accordance with the law, having been first entered
on the Plan on 20 September 2013.
5. Results of consultation
5.1 The Cabinet Member for Housing and Regeneration has been consulted on the report. The report itself has been agreed with Brixton Green and Ovalhouse.
5.2 A range of engagement techniques have been used including a Walk and Talk event, the Future Brixton website and a pre-Cabinet briefing session with the Cabinet Member for Housing and Regeneration.
6. Organisational implications
6.1 Risk management:
Risk Risk Description
Mitigation(s) Status (RAG)
Shared Vision
Lack of a clear vision for the project.
Development of an initial project brief which reflects the aspirations and objectives of local people; the project brief will include quality objectives, project outcomes, sustainability aspirations, project budget.
Green
Design Responsibility
Clear decision making in signing off designs
Prepare a design responsibility matrix.
Green
Decision Making
Clear roles and responsibilities of partners
Steering group to be established, Chaired by the Lead Member for Housing and Regeneration and containing representatives from Brixton Green and Ovalhouse. Prepare project roles, contractual tree and terms of reference for the steering group.
Green
Planning The project fails to secure planning permission
Feasibility study prepared to Stage C detail – the report has been developed in partnership with local stakeholders and has been reviewed by the Planning Authority’s Major Applications team.
Green
Site Assembly Risk
The project fails to secure vacant possession of the site
The Council has agreed a capital budget to secure vacant possession and agreed a recommendation to make a CPO for the site.
Amber (until initial negotiations completed)
Ground Risk Risks identified in the ground i.e. tunnels
Connissbee structural survey completed; Topographical and underground services surveys to be carried out;
Amber (until surveys completed)
Construction risks
Cost over runs etc
Share risk with contractor; Incentives within the contract with the development manager to ensure no cost over runs on construction element of the project.
Amber (until contract in place with contractor)
Council guarantees rental income stream
The Council will need to guarantee the rental income stream and any RPI increases required by funders for 35 to 45 years
Study to be commissioned on long term strength of the rental market in Brixton. Financial model will continually assess the risk profile. Flexibility within the scheme to change in response to the market i.e. flip to private sale.
Amber
Ovalhouse Theatre ceases to operate
Ovalhouse ceases to be and the Council has funded the construction costs of the new
Draft Heads of Terms transfer ownership of the Kennington site to the Council; Potential to design a flexible building which could be used for
Green
theatre other uses.
Build costs exceed Ovalhouse funding
Build costs over run.
Agree detailed spec for the theatre and budget. Development manager incentivised to prevent construction cost overruns.
Amber
Mature Client Multiple or significant changes to the project which affect delivery
Clear terms of engagement for Members, officers and partners.
Amber
6.2 Equalities impact assessment: A full EQIA assessment (appendix 1) has been carried out for the Future Brixton
programme and the EQIA has informed the development of this project. 6.3 Community safety implications: Community safety is a key issue for the Somerleyton Road project and is one of
the main drivers for change. Crime and anti-social hotspots have been identified and a joint approach
between local stakeholders, the Council and the borough’s Community Safety officer have resulted in a number of mitigation measures being included in the proposals.
The partnership will continue to assess how development along Somerleyton
Road could continue to improve community safety in this part of Brixton whilst also working closely with any future development partner over site safety during the construction period.
6.4 Environmental implications: The tender documents will include a series of sustainability requirements and
targets for the construction process as well as the long term performance of the residential, commercial and community buildings.
An arboricultural survey will also be carried out prior to any detailed planning
work. 6.5 Staffing and accommodation implications: The staffing and accommodation implications are set out in section 3 of the report
and relate to the relocation of the Angela Davis depot and the Lambeth and Southwark Community Transport depot.
6.6 Timetable for implementation
As set out in paragraph 2.41.
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