Meeting documents
Cabinet
Wednesday, 2nd March, 2005
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Bath & North East Somerset Council |
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MEETING: |
Council Executive |
Paper Number |
E736 |
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MEETING DATE: |
2nd March 2005 |
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TITLE: |
Bath Western Riverside Project: Principal Development Agreement |
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WARD: |
ALL |
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AN OPEN PUBLIC ITEM |
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List of attachments to this report: None |
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1 THE ISSUE
The Council is seeking to finalise a Principal Development Agreement with Grosvenor Developments Ltd for the regeneration of Bath Western Riverside. Executive approval is sought to authorise the Executive Member to finalise the negotiation prior to Council approval on the terms of the agreement.
2 RECOMMENDATIONS
The Council Executive is asked to agree that:
2.1The Executive Member and Director of Major Projects jointly be authorised to finalise negotiations for a Principal Development Agreement (PDA) with Grosvenor Developments Ltd in respect of Bath Western Riverside.
2.2 The final terms of the PDA be reported to Executive and full Council for approval prior to exchange of the agreement.
3 FINANCIAL IMPLICATIONS
The cost of the resources required to finalise the negotiations are within the approved budget for Bath Western Riverside. The financial implications of the agreed terms will be fully set out at the time the terms of the PDA are reported to Executive and full Council. Due regard for value-for-money, land valuations and profit-sharing will be part of the negotiation process.
4 THE REPORT
4.1 In September, 2002 the Council entered a Co-operation Agreement with Grosvenor Development Ltd, which provided the developer with an exclusive opportunity to test the viability of development, and conclude a PDA with the Council, subject to acceptable terms. Since that date, consultants have been jointly procured by the Council and the developer to develop a Masterplan in accordance with the Supplementary Planning Guidance for Bath Western Riverside. Work has progressed to the stage which has enabled the partners to enter meaningful negotiations to agree the Heads of Terms of a PDA, and ultimately conclude an agreement.
4.2 A number of mechanisms have been established to regulate these negotiations and ensure the Council's requirements will be reflected in the outcome:
4.2.1 The development of the Masterplan has involved wide ranging consultation with both members and senior officers, including three presentations to members on 29th June, 2nd December 2004 and 8th February 2005. Further stages of consultation are planned prior to final Council endorsement. The principles underpinning the agreed Masterplan are to be embodied in the PDA.
4.2.2 The Executive Member for Economic Development is fully involved in the consideration of terms and instructions to the negotiation team.
4.2.3 A cross-service group of senior officers has been established and has met on two occasions to consider the critical factors key to achieving the Council's requirements in the development of BWR and to provide direction to the Council's negotiating team. This Group is led by the Director of Major Projects and consists of the Executive Member for Economic Development, the Director of Operations, the Director of Resources, the Solicitor to the Council, the Head of Property & Legal Services and senior representatives from the planning and finance sections.
4.3 Written exchanges have taken place with Grosvenor regarding the PDA and there have been two meetings in January to discuss terms. Further meetings are currently being programmed. However, substantive progress is unlikely to be made until a revised viability report is received and analysed by the Council. This is due shortly.
4.4 Certain issues of principle can still be progressed, including:
4.4.1 The treatment of Masterplan and pre-development costs;
4.4.2 The treatment of council owed land;
4.4.3 Hurdle rates and overage payments;
4.4.4 The "core" development site compared with the SPG area;
Hurdle rate and Overage payment explanation:
The "hurdle rate" is the rate of return, whether expressed as a profit on cost or as an IRR (return on capital) that is the minimum acceptable to the Board of Grosvenor Estates.
In the case of BWR, there should not be a single rate. The hurdle rate on speculative residential development would be higher than on office built for a pre-committed client - especially a public sector client.
Commonly a "fair development return" is seen as being between 15% and 20% on cost.
"Overage payment" is effectively a profit share, when returns exceed the pre-determined hurdle rate. A sharing of "super profit" can be on a sliding scale, so that the developer and the council may share the first £5 million on a 50/50 basis, and beyond that 60/40, and then 75/25 say.
4.5 The prospects for the successful regeneration of the Bath Western Riverside have significantly improved with the potential introduction of another private sector partner, Crest Nicholson, to the partnership. This company brings with it substantial experience and expertise of high quality residential development. However, its participation has yet to be formalised, and it will introduce an additional element of complexity to the PDA negotiations.
4.6 It is intended that sufficient progress will be made with both the PDA and the development of the Masterplan to enable officers to prepare a full report outlining available options and recommending a course of action for presentation to the Council in July.
5 RISK MANAGEMENT
5.1 A risk assessment related to the issue and recommendations has been undertaken, in compliance with the Council's decision making risk management guidance.
5.2 It is considered that any risks associated with this course of action are mitigated by the proposal to seek Council approval to the terms of the PDA.
6 RATIONALE
The recommended way forward is considered the only practical means of progressing an extremely complex set of negotiations in a compressed timeframe. Checks and balances are incorporated into the process through the involvement of the Executive Member and the Parameters Group, and any decision to enter a formal PDA with Grosvenor (and Crest) will be taken by Council.
7 OTHER OPTIONS CONSIDERED
We have considered seeking full Executive approval for individual elements of the PDA, however this would involve further delays and be counter-productive.
8 CONSULTATION
Full consultation is ongoing, as described above in 4.2. A copy of this report has also been sent to Trades Unions; any response will be reported at the meeting.
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Contact Person |
Major Projects Director, Ext. 7500 |
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Background Papers |
None |