AGENDA ITEM 8

BOROUGH OF POOLE

CABINET – TUESDAY, 26 APRIL 2005

REPORT OF THE HEAD OF STRATEGIC PLANNING ON

POOLE BRIDGE REGENERATION INITIATIVE: COMMERCIAL VIABILITY

Decision required:

  • To note the contents of the report, indicating the commercial viability testing undertaken to date;
  • To endorse the officers’ continued negotiations with public sector agencies in order to secure further support for the implementation of the Regeneration Initiative; and
  • To endorse the officers’ continued use of the viability testing as the basis of negotiations with landowners and developers in order to secure an appropriate delivery mechanism.

1.Purpose of Report

1.1The purpose of the report is to:

  • Inform Cabinet of progress on viability testing and the completion of this phase of the work;
  • Consider the continued use of this work to inform future negotiations with landowners and developers; and
  • Set out the range of issues that will frame those negotiations and be the subject of future reports to Members.

2.Introduction

2.1The Council has established its policy framework for the Poole Bridge Regeneration Initiative in:

  • The Poole Local Plan First Alteration (March 2004);
  • Masterplan SPG (2005);
  • Planning Obligations SPG (2004); and
  • Adopted or emerging guidance on Streetscape and Employment levels.

2.2A cornerstone of the Council’s approach is that the regeneration be delivered comprehensively. It is assumed that policy is applied as though the Regeneration Area, shown on the attached plans, were a single site. In other words, individual landowners should neither gain from “cherry-picking”, nor disadvantaged by the breakdown of uses, or the phasing of a particular site.

2.3Site specific planning applications will therefore be judged against the following criteria:

  • Comprehensiveness – does the proposal demonstrate how the Council’s overall aspirations will be achieved? It will do this if it is:

a)A single application for the entire Regeneration Area; or

b)It is backed up by a mechanism/ agreement indicating how landowners propose to achieve comprehensiveness; or

c)The developer agrees to a legal agreement, which makes provision not only for infrastructure and public benefits but also for an equalisation” payment, enabling other sites to accommodate lower value uses.

  • Compliance with the Council’s policy framework; and
  • A shared commercial appraisal of the viability of the proposal and its ability to meet the Council’s aspirations.

2.4Although still possible, it is now not necessarily the case that comprehensiveness will be achieved through a single development proposal or landowner agreement. It may well be that the Council will itself, through the process of negotiation, have to implement a delivery mechanism. It is therefore essential that negotiations are underpinned by a sound commercial appraisal of proposals, offering confidence that the developments are viable.

3.Consultancy Work

3.1In August 2003, the Council commissioned GVA Grimley to undertake two pieces of work:

  • An assessment of the appropriateness of the employment component of the Poole Local Plan’s proposals for development in Poole town centre (a much wider area than the Regeneration Area) largely developed through the original O’Rourke Master Plan. This had been required by the Local Plan Inquiry Inspector, who had expressed concern that the Plan’s proposals had not been fully tested;
  • A rigorous appraisal of the commercial viability of development proposals for the Regeneration Area, having regard to the proposed mix of uses, phasing, and necessary physical and social infrastructure provision. For this element of the work GVA Grimley were assisted by ABROS (development finance consultants), Gardiner and Theobold (Quantity Surveyors), and Terence O’Rourke.

3.2The first commission was completed in October 2003 and broadly confirmed the validity of the Council’s approach, expressing confidence in the development of the local market for employment floorspace as the scheme progressed. It was expected that the quality of the regeneration, itself, would attract investment. This work was used to support the Modifications to the Local Plan, together with the Draft Employment Space Supplementary Planning Guidance. The latter also had regard to amendments made to the Master Plan, which slightly reduced, by about 8,000 sq m, the overall employment floorspace expected to come forward in the town centre as a whole.

3.3The second commission has been undertaken over an extended period because it coincided with a review of the Draft Master Plan, published for public consultation in 2002. As a consequence, a number of iterations, with associated sensitivity testing, were required. This work has now been completed and final reports received. The amended Masterplan has been approved by the Council and is now being prepared for publication.

4.Scheme Components and Assumptions

4.1The final “base case” commercial scenario is based on the two attached plans, showing block layout and the distribution of ground floor uses. The quantitative components of the scheme are:

  • Total parking spaces3,136
  • Private residential units1,387
  • Affordable residential units 877
  • B1 employment (sq m) 36,000
  • Hotel, Showroom, A1/2/3 (sq m) 34,000

4.2The total physical and social infrastructure costs, which have been assumed in the viability work, are those which cover: off-site utilities; necessary highway improvements, including intelligent transport systems; public transport investment; measures to protect the SSSI; flood defence works; quayside walks; streetscape; education; recreation; and community facilities. Also included is the cost of the relocation of the electricity transformer station, a requirement of the amended Master Plan.

4.3Other important assumptions are as follows:

  • Land is valued at open market value (ie having regard to development potential). Sensitivity testing has also been done where the land is valued at existing use value, the more appropriate valuation should the Council compulsorily purchase the land. Under the latter, landowners do less well from the scheme;
  • 25% of the affordable housing is accommodated on-site, with 15% being located off-site. This renders the scheme more viable because it allows for more high value private housing on-site, ensuring that a wider range of the Council’s aspirations is achieved. Sensitivity tests have also been conducted with 25% on-site and 10% off-site. The Council would not normally readily accept off-site provision but there would be advantages in this case and the Head of Housing and the Regeneration team are currently working on an Affordable Housing strategy for the Regeneration Area;
  • It is assumed that house prices increase by 4.5% per annum during the development period, though sensitivity testing has also looked at rates of 5% and 5.5%;

5.Commercial Viability

5.1The financial outputs from the model indicate that the total scheme is worth (income from final sales) about £0.9 billion. They suggest that the public benefits identified by the Council are reasonable and that the scheme generates commercial landowner sale values. The notional costs of the implementation mechanism are also reflected in the model but in this respect it is important to note three things:

  • The viability model is predicated on the presence of a Master Development Partner. That is to say the Council contracts with a development partner who acquires all the land, accepts the financial risks in return for a fee, and parcels up the land for development to an agreed phasing programme. It has already been noted above that this may not happen in practice. This would have a positive benefit for the viability of the scheme but would attach greater importance to the process of negotiation;
  • The provision of affordable housing is not shown as a cost to the scheme because its provision is implicit in the model. In other words, the income and costs associated with its provision are treated in the same way as the provision of private housing except for the assumption that a level of Social Housing Grant will be available. It is anticipated that this will be met by the Housing Corporation.

5.2The tables below indicates the scheme outputs on a site by site basis and demonstrates the need for a comprehensive approach, ensuring that landowners are not disadvantaged by the distribution of land uses and phasing.

6.Conclusions

6.1The total value generated by the scheme (total developer income generated by sales) is more than £900m. The viability testing suggests that the Council’s aspirations are reasonable. Delivery of the scheme is, in this work, assumed to be a Master Development Partner. However, this may well not be the case. It is likely that the Council will need to secure its aspirations through a lengthy process of negotiation with landowners and developers, and discussions with agencies such as the Regional Development Agency, English Partnerships and the Housing Corporation.

6.2The process of negotiation will be undertaken against the background not only of this commercial appraisal but also a negotiating strategy and delivery mechanism. Both of these elements are currently in the course of development and further reports will be submitted to Cabinet. The negotiating strategy is particularly important as it will establish a framework for decision making at a time when, as key decisions on the bridge and core scheme approach, the Council will come under pressure from developers to make concessions in order to ensure funding for that infrastructure. The Council will require further commercial advice as negotiations proceed.

David Ralph

Head of Strategic Planning

April 2005

01202 633327

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