Agenda item

Chatsworth Gardens - Outcome of Developer Competition and Consideration of the Private Sector Led Proposal

(Cabinet Member with Special Responsibility Councillor Hanson)

Report of Chief Officer (Regeneration & Planning) - (Appendix 2 to follow)

Minutes:

(Cabinet Member with Special Responsibility Councillor Hanson)

Cabinet received a report from the Chief Officer (Regeneration & Planning) to consider the outcome of the recent developer competition for Chatsworth Gardens, the PlaceFirst proposal and the draft heads of terms for a detailed agreement. The options for the way forward were compared, including the previously agreed council-led scheme to deliver refurbished homes for sale.

The options, options analysis, including risk assessment and officer preferred option, were set out in the report as follows:

Option 1: Implement previously approved city council led scheme for refurbishment of council owned properties on Chatsworth Gardens to deliver homes for sale

Option 2: Secure an agreement with PlaceFirst for refurbishment of council owned properties on Chatsworth Gardens to deliver homes for market rent (Preferred Option)

Provides a positive and quality solution to the desired Chatsworth Gardens regeneration objectives / outcomes.

Utilises existing Clusters of Empty Homes Funding (CEHF).

Brings empty homes back into use.

Clearly sets out council’s commitment to local residents and owners in the area.

Demonstrates delivery to HCA (Homes and Communities Agency) boosting chances for future funding.

Provides all advantages of Option 1 with a number of additional benefits:

Funding model and tenure allows greater capital investment/value to be generated out of almost double the individual housing unit outcome.

Current appraisal, even with high level of sensitivity applied, appears to give a greater certainty on the extent of intervention. At the current assessment all the council’s empty properties on Chatsworth Gardens are refurbished (in 2 phases) and a surplus is generated on the initial public grant investment which can be recycled back into the project or further housing/regeneration investment.

In terms of architectural approach the scheme provides a greater impact – moves the project more towards ‘exemplar’ features originally envisaged in West End Masterplan.

Developer has specialism in, and seeks to deliver, higher environmental standards.

Developer has commitment to, and a commercial interest in good long term management of the development and improving the wider area and context for their investment. Place First see themselves as a potential council partner on future projects/developments.

“Open book” accounting allows council to accurately assess reasonableness of the developer’s costs, returns etc.

Transfers construction and delivery risk to private sector. Moves from sales risk to a relatively less risky rental model.

More control over and greater amount of private sector investment to enable draw down of all CEHF.

Ideally requires co-operation from owner occupiers & landlords to implement facelift element and deliver a cohesive scheme

Uncertainty of delivery outcome for Regent Road and extent of progress is subject to the achievement of projected sales values

Misses out on potential to transfer development risk away from the council.

Tenure model of sales to owner occupiers is high risk in current market and location, even with the new Government Help to Buy scheme.

Ongoing increasing management costs of properties as scheme progresses, particularly council tax liabilities as majority empty for more than 2 years

Ideally requires co-operation from owner occupiers and landlords to implement facelift element and deliver a cohesive scheme.

Phasing of scheme and dependence on market conditions before Phase 2 can be committed means the council is still liable for management costs associated with those empty properties, although there is a similar burden for Option 1 (refer to Financial Implications).

Under adverse market conditions and performance Phase 2 may be less extensive and/or lower surplus return on public grant and may even prove unviable. However, similar market risks are attached to Option 1 in terms of potential extent of intervention

Option 1: Implement previously approved city council led scheme for refurbishment of council owned properties on Chatsworth Gardens to deliver homes for sale

Option 2: Secure an agreement with PlaceFirst for refurbishment of council owned properties on Chatsworth Gardens to deliver homes for market rent (Preferred Option)

Involves the council taking on the delivery risks on a capital housing development project.

The council will face a sales risk on the direct refurbishment properties that needs to be mitigated by some form of mortgage assistance scheme.

Limited control over private sector match required to access part of CEHF grant.

Build costs and sales date/value can adversely impact project (although a reasonable contingency is built in).

Failure to achieve sales rates/values adversely effects ability to achieve full extent of project and could lead to an underachievement of CEHF outputs and issues with the funder.

Uncertainty of delivery until development agreement is finalised and impact on deadlines for meeting CEHF obligations. Similarly, the Developer not completing Phase 1 for reasons beyond their control. Reversion to the council-led scheme as a contingency is not practical after January 2014. However, the risk of not achieving agreement or completion is considered low.

Securing tenants still represents a challenge and the developer has not formally secured a Registered Provider as a managing partner at the time of writing.

The proposal is based on untested private tenure/management models and the developer is a relatively young and rapidly expanding company, i.e. currently undertaking two other similar schemes, one due to complete November 2014.

Failure to complete and/or achieve projected outturn from Phase 1 adversely effects ability to achieve Phase 2 and could lead to an underachievement of CEHF outputs and issues with the funder.

A ‘do nothing’ option is not included within this report. Disposal of all properties with sales receipts covering disposal fees was discounted due to Members’ consistent support for finding a positive solution to Chatsworth Gardens. The option of ‘pulling out’ of the projects presents considerable risk in every way other than financial. It declines to use approximately £1.9M CEHF funding currently secured and might also damage future council HCA resource bids and partnership working. This option is therefore not considered in this report.

Option 1 is the ‘council-led’ scheme previously agreed by Members following December 2012 Cabinet (minute reference 82) and officers have continued work on this as a contingency. The proposal was detailed in a previous report, listed as a Background Paper.

As noted in previous reports the basis of the intervention strategy in Option 1, and the ultimate underlying risk, lies in securing sales for the houses remodeled. As refurbishments are completed in particular terraces, ongoing sales are required to generate further income to continue with further phases of intervention otherwise the project will stall. The mortgage market is still difficult for first-time buyers, although the introduction of a local mortgage assistance scheme and the recent launched new phase of the Government’s Help to Buy policy might partially improve this situation. Members should be under no illusion about the challenge of securing rolling house sales in the West End of Morecambe in the current economic climate, and the very real risks this presents to delivering a project with this tenure model.

Given the general risks attached to Option 1 the Place First proposal as described in Option 2, merits serious consideration. The introduction of a market rent model allows a much more flexible and potentially more extensive approach to be taken. According to the council’s own market intelligence and discussion with local agents, refurbished maisonette/apartment property iss difficult to sell on the open market – the council’s scheme did not therefore consider these house types. However, renting this type of property is less of an issue for prospective tenants who are generally more concerned with overall design/quality, management/landlord relations and security of tenure.

Councillor Hanson proposed, seconded by Councillor Leytham:-

“That the recommendations, as set out in the report, be approved.”

Councillors then voted:-

Resolved unanimously:

(1) That Option 2, to secure an agreement with PlaceFirst for refurbishment of council owned properties on Chatsworth Gardens to deliver new homes for market rent, be approved.

(2) That the Clusters of Empty Homes Funding be reallocated from the previously approved “council-led” scheme to Phase 1 of the preferred Option 2.

(3) That, on the basis of the draft heads of terms outlined in the report to the agenda, and in conjunction with PlaceFirst, officers draw up final contract documentation, consisting of an overarching development agreement, building licence and grant agreement, for delivery of Phase 1.

(4) That, subject to HCA lifting its charge on the properties, authority to sign off the development agreement and building licence be delegated to the Chief Officer (Governance), and authority to sign off the grant agreement be delegated to the Chief Officer (Resources).

(5) That Cabinet is satisfied that disposal of the Council’s interests in the property will help the authority secure the promotion or improvement of the economic, social or environmental well-being of its area, and, approves the disposal of the Phase 1 property for nil consideration, noting that, as the current independent property valuation exercise has confirmed that the undervalue is less than £2m, the terms of the General Disposal Consent will apply.

(6) That Cabinet agrees in principle to the delivery of Phase 2, allowing officers to work with PlaceFirst on detailed proposals to be informed by the experience of Phase 1 delivery. Detailed proposals to be presented to Cabinet for Phase 2 seeking authority to proceed.

(7) That officers develop and submit a bid to the Department of Energy & Climate Change “Green Deal Communities – Local Authority Fund” for energy efficient measures to i) supplement the energy efficiency proposals specified in the preferred Option 2 and ii) improve and roll out energy efficiency measures to properties in the West End area. Authority to sign off the bid and accept any funding awarded be delegated to the Chief Officer (Resources).

(8) That the Chief Officer (Resources) be authorised to update the General Fund Capital Programme and General Fund Revenue Budget as appropriate, subject to there being no additional call on the Council’s resources.

Officers responsible for effecting the decision:

Chief Officer (Regeneration & Planning)

Chief Officer (Resources)

Chief Officer (Governance)

Reasons for making the decision:

In January 2011 Council resolved that housing regeneration be included as a theme in its corporate priorities and this was reaffirmed in the 2012-2015 Corporate Plan.

Officers have conducted a developer competition to test all current private investment interest in the Chatsworth Gardens development opportunity. PlaceFirst have provided a proposal which, if supported by the Council’s exercise of its powers under the Local Government Act 1972 general disposal consent, will help the Council to secure the promotion or improvement of the economic, social or environmental well being of this area by the refurbishment of council owned properties on Chatsworth Gardens to deliver new homes for market rent. The decision enables officers to secure an agreement with PlaceFirst based on their proposal which both reduces the Council’s risk burden and secures a better and more certain outcome against its regeneration objectives.

Supporting documents: