Progress Report on the Watford Campus Development with particular focus on any effect the credit crisis may have on the plans.
Watford Health Campus:
The Watford Health Campus is a mixed use regeneration programme with the following sub-Projects:
- New Hospital
- Hotel & Conferencing Facility
- 550+ Residential Units
- New Access & Link Road
- Business & Business Incubator Units
Each of the above Projects forms a potentially distinct and stand-alone sub-set of the wider Campus programme – provided there is co-ordination. There remains the potential for a single “Urban Regeneration Vehicle” approach, more on which, later.
The Health O&SC committee will be aware of the Watford Borough Council Development Control Committee resolution to grant outline planning approval for the Watford Health Campus on 15th May 2008. This resolution was subject to a small number of caveats, namely:
- Resolution of Highways Agency concerns REF M1 J5 (and removal of their holding direction).
- Confirmation that Secretary of State call-in to Planning Inquiry would not be necessary (GO East review)
- Finalisation of a S106 in accordance with the Heads of Terms noted in the Committee report.
The Campus Project Manager can report that the Highways Agency removed their holding direction in June 2008. All concerns have been addressed and impacts mitigated to the Highways Agency's satisfaction.
GO East issued a decision letter on 27th August 2008 that the WBC DCC decision did not require referral to Secretary of State.
Progress is being made towards resolution of the S106 and negotiations are underway between the Campus and both HCC and WBC on this matter. It is expected that the S106 will be resolved in the first part of the first quarter of 2009 and that therefore a formal outline planning permission will be granted in early Spring 2009.
The impact of the Credit Crunch on the Campus and the hospital is an unknown, but will be tested in a new piece of advice currently being procured. This will consider all potential delivery vehicle options (including a single Asset Backed Vehicle) and make a recommendation on an appropriate delivery structure, including financing.
The appointed advisors will seek a soft market testing of the scheme and any proposed delivery structure.
The current credit issues could have multiple effects on the overall Campus and the hospital including:
- The Public Sector (and hence the Campus) could become more attractive as a tenant/ occupier/ client, given the enhanced security of having a government covenant. POSITIVE
- The restricted availability of capital/ bank finance could mean increased funding costs/ difficulty in securing sufficient finance.
NEGATIVE - The reduction in Bank of England Base Rate will make finance cheaper than the benchmarks used in the development appraisal.
POSITIVE - The regeneration focus of the Campus may make it more likely that funds could be secured from the European Investment Bank.
POSITIVE
What must be recognised is that the economic cycle will have moved on again by the time the “commercial” developments come forward for marketing. It should also be considered that current plans are for much of that commercial development to have a Public Sector “pre-let”, which potentially makes them substantially more deliverable during difficult economic conditions. We can report that there continues to be market interest in the Campus scheme.
New Acute Hospital:
After an articulated delay of a number of months to ensure successful delivery of the “Delivering a Healthy Future” project, the new hospital project is back on track and working towards the preparation of its Outline Business Case.
The Trust has recently employed a new PFI Project Director to take the lead on this important project and over the coming weeks he will be supported by commercial, facilities and equipment team members to ensure the delivery of the OBC in 2009.
From January 2009 the project team will be focussing on developing the masterplan design solution and working up 1:500, 1:200 & 1:50 hospital designs to ensure that the scheme delivers the key project objectives to turn the vision into a reality.
A key criterion of the project is to develop and design a new acute hospital that is affordable, efficient and deliverable in the changing economic environment. With this in mind, patient and local community engagement has been identified as important objective for which the Trust and the Project Team will be implementing a communications strategy and stakeholder management plan in early 2009.
Effects of the credit crisis on the hospital
Lenders and Borrowers across the financial markets are still assessing the full impact of the credit crisis on their deals. At present it is difficult to predict the full impact and only time will tell the true impact.
What is known at this point in time is that there is a distinct possibility that the current economic climate will slow down some government infrastructure projects. However, should the Government decide to accelerate spending to provide economic stimulus the Trust will do its utmost to respond to any change. Early indications however suggest this is extremely unlikely for large hospital projects.
The bond market is closed and banks are reviewing PFIs more closely as lending to other banks (necessary to facilitate PFI) is perceived to be more risky than 6 months ago.
To quote Gershon Cohen (Head of Infrastructure Finance @ HBOS plc)
“We are forecasting ’Challenging times ahead’. Whereas before we were seeing ’Money chasing Deals’ and we are now seeing ‘Deals following Money’.”
At present there is only 1 hospital PFI project out to the market and they have yet to undertake the funding competition to select their funder.
For the West Hertfordshire acute hospital development, it is crucial that we move forward on our plans for the new hospital while keeping a watchful eye on the markets and flexibility in our approach to funding options.
Our strategy is:
- Not to panic.
- Expect changes to funding streams in the future and be in a position to adapt to these changes.
- Prepare to be flexible and monitor the situation regularly
- Continue to explore innovative ways to reduce the overall cost of the hospital and ensure the project is very attractive to the market so to attract the best PFI partners.
Eric Fehily
PFI Project Director
Kyle McClelland
Programme Manager - Watford Health Campus
Tuesday, 02 December 2008