Financial Viability

The agenda papers for the cabinet meeting on 7th February 2017 included next to no information on the many risks of developing Princes Parade  nor did they include a feasibility study for the leisure centre as we were promised at the exhibitions in November 2016. Despite this they voted to submit the planning application to themselves and the planning application was published in September 2017.

In response to the planning application, the planning officer asked the applicant to submit a viability assessment to demonstrate how the leisure centre will be funded including demonstrating the need for 150 residential units and to outline the additional cost of delivering the leisure centre at Nickolls Quarry.

This viability assessment was published but was so heavily redacted that we couldn’t see how the costs have been calculated.However we suspected the figures have been skewed so show make NQ look less favourable and that the costs/risks of developing Princes Parade may have been underestimated.

You can see the redacted  report here additional – financial viability report

However, shortly before the day when the planning application was due to be put in front of the planning committee the council published this unredacted version Financial Viability Report – unredacted.

And with thanks to ShepwayVox here are some “confidential”  pages from the officer’s report (which the council did subsequently publish)  restricted-pages-145-148   

The council have also published the Savills report from which the £14.3m figure for the value of the housing land used in the FV report is derived. Savills Viability Assessment Report – 13.07.17

They have published some other reports here under latest documents The council have quietly released some other documents here under latest documents

We have been studying the financial viability reports. There are lots of inconsistencies in these reports so this has not been an easy task.

Clearly the consultants have inflated the costs of the leisure centre on Nickoll’s Quarry to make it look less viable than PP.

They claim that the leisure centre on PP will need a contribution from the council of £2m after taking into account the income from the housing but that figure has been calculated by cobbling together figures from two different reports which were prepared using different bases and assumptions.

Because of this they have failed to take into account all the exceptional costs that apply to phases 3 & 4 (ie the housing phases) so it’s likely that the cost to the council will be considerably more than £2m.

They have also tried to inflate the income for PP eg by including the £1.4m off site affordable housing contribution from the Imperial Green development.

At this stage so much about the project is still uncertain so nobody can be sure of the exact costs. Therefore from a planning point of view we don’t think much weight should be placed on the viability studies.

From a financial point of view we think the council has a lot more work to do so that they have a better understanding of the risks involved and the cash flow implications of this project.

What is clear from comments that Councillor Monk has made is that he does not understand the amount of preparatory work that needs doing before any building can commence on Princes Parade and therefore the amount of upfront funding the council will need to find.

Despite the lack of detail we were able to piece together enough information to submit these comments on the redacted documents:

SPP Comment on Appendix 3

We submitted a further comment on the unredacted document which you can read on the council’s planning website.

Dr Geoff Burrell approached the problem from a different angle and came up with this Dr Burrell – ANALYSIS of Sports Centre Viability Cost Appraisal

On 31 May 2018 we submitted a Freedom of Information request, via the What Do They Know website, for all the correspondence with Betteridge & Milsom – the consultants who prepared the financial viability calculation. FHDC decided that it was an Environmental Information Request not an FoI and so they were entitled to charge us for the time it would take to supply the information which they estimated at 4 hours – £100. One of our supporters kindly paid the fee. FHDC then said it would take too long to supply the information in the required 20 working days and gave themselves another 20 days. When we did finally receive the information most of the figures had been redacted.

You can read FHDC’s justification for redacting the figures here: LS-006757-AN – response

You can read the information they did release here.

At the cabinet meeting on July 19th 2017 cabinet authorised officers to commission some further work including a business plan for the leisure centre and a capital funding strategy but surely these are things that should have been done before they spent so much public money preparing a planning application. Cabinet are due to discuss this but as at July 2018 they have not done so – at least not in public.

Worryingly the risk assessment on the 7 Feb agenda papers identifies that the risk that the scheme to be submitted to the planning authority (ie Shepway themselves) will not be financially viable has a high seriousness and medium likelihood.

In October 2017 we asked Martin Arnold ,a firm of Chartered Surveyors, to do a financial viability calculation for the project using publicly available data. They calculated the residual value of the land as being minus £7.6m and the cost of the project as a whole as £67m. This means that despite claims from the council that the project “washes its face” and “covers its costs” in fact the proposals to develop Princes Parade including a leisure centre are not financially viable.

You can read the report here.Martin Arnold Financial Appraisal 

Another Chartered Surveyor, Derek Maynard, carried out his own calculations which he has agreed to share with us here. He identifies a loss of £30m and significant cash flow problems.

In October 2018 the council have announced that they have received a grant from Home England’s Accelerated Development fund.

Business Plan for the Leisure Centre

There is very little information in the public domain about the business plan for the leisure centre itself and it has not been discussed in any detail at any public meeting of the council’s cabinet.

However, we do have these slides from the March 2018 meeting of the Princes Parade Working Group.

Princes Parade Working Group – March 2018 version A (1)

Slide 6 claims there will be 351276 users per annum ie 960 per day which seems somewhat optimistic. It also claims a “revenue turnaround” of £332779. What does that mean?  profit? turnover? The plan seems to be to outsource the management of the facility to a 3rd party with the 3rd party paying the council £61009 per annum. Slide 7 says that 5 trusts have shown interest in running the new leisure centre but have they been shown realistic figures?

Slide 11 lists some developers who have been approached re the housing land. Slide 12 claims a high level of interest from these developers but states that they would prefer to acquire the land for the whole 150 new homes. (The council’s  Financial Viability calculations assumed that it would be sold off as two separate plots.) The slide also says that the developers would prefer a joint venture/structured land sale rather than a straight land sale.


Feasibility Study for the Leisure Centre and Earlier Financial Information

The report which was meant to be the feasibility study for the leisure centre is in fact the updated Strategic Leisure Report which you can read here as (unusually) we managed to get hold of it via a Freedom of Information request. It doesn’t seem to have been made available to the councillors.

Looking at appendix 1 the demand for health & fitness in 2016 Strategic Leisure apparently identify a shortfall of 166 peak time gym stations in Shepway. That didn’t tally with our experience so we started looking more closely.

SL calculate a demand of 323 vs a supply of just 157 = shortfall of 166. However on the same spreadsheet they show that there are in fact 735 gym stations in Shepway.The 157 are what they refer to as “community accessible stations”; the remaining 578 they are not counting are commercially operated gyms – but these gym stations are accessible by the general public as Strategic Leisure themselves agreed when they did a similar analysis in 2010 and included the commercially operated gyms. So there is no deficit of peak time gym spaces.

The 2010 Analysis can be found as Appendix 3 at the bottom of this page

It shows a demand then of 510 stations and a supply of 514 (this figure included commercial operated gyms) = a surplus of 4 places.

If you now compare the 2016 and 2010 assessments they appear to be saying that demand has actually gone down but supply has gone up.

Further their projection forward for 2031 (appendix 2 from the first link) shows demand for just 348 spaces.

These numbers beg the question – is there any need for the additional gym stations in the new leisure centre?

(Note that the updated SL report now shows that there is no need/demand for the sports hall in the leisure centre so it has been deleted from the proposals.)

Of course Strategic Leisure may have got their numbers wrong or have adopted a different means of calculation to suit a particular purposes – but how can Shepway Council place any faith in this assessment and base its decision making on it?

We accept the need for a new pool in Hythe provided it is in the right place and we accept that a pool on it’s own won’t make enough money but we are not at all convinced that there is a demand for the additional services being proposed alongside the pool and therefore we are not convinced the leisure centre will be able to run without a contribution from council funds.

The initial consultant report from Strategic Leisure came up with a cost for the new pool on Princes Parade of about £12m.   This  assumed that there were no unusual ground conditions and that piling, ground stabilisation or measures to deal with contamination would not be necessary. This is obviously not true. The report discussed at length the need for a new leisure centre rather than just a replacement pool and concluded that it would require the income from the additional gym facilities to be viable but no revenue/cost forecast were or have yet been published to justify this. In their response to the Places & Policies consultation Sport England say that there is not enough evidence of the need for a leisure centre.

Shepway thought £12m was too high so in their second report SL recommended the ARC model at a cost of £7.5m. This figure also excluded significant costs. In their report GVA suggested budgeting for an additional £1.125m costs which we don’t believe is sufficient.

At the council meeting on 28th May 2014 Jeremy Chambers admitted that the consultants’ figures were “high level” and undertook to ask them for more detail. This was never done.

In preparation for the cabinet meeting on 4 November 2015, Savills were instructed to prepare some land valuations for all the sites involved in the proposals. Not surprisingly they concluded that the new primary school was not viable unless Kent County Council was prepared to invest significant sums. The value of the land at Princes Parade varied from £2m (high density – 36 new home s-  with affordable housing) to £4.470m (low density – 12 new homes – , no affordable housing). They used a building cost 0f £170psf compared to a more usual £130psf to take account of the abnormal ground conditions. Is this enough?

Since Shepway had finally got around to commissioning a contamination study of the site, the remediation costs according to the officer’s report for the Nov cabinet meeting were now estimated at £2.15m ie nearly double the previous estimate. However, as the report made clear, this is just a “preliminary remediation strategy”. The report also points out that there would also be other significant costs associated with mitigating the harm to the Royal Military Canal.

The report says “It is clear however, that the site can accommodate more than 36 dwellings and if this was accepted it would this provide a significant margin of security for the project.” However it was confirmed at the cabinet meeting that the number of houses will be limited to 36.

So it was rather surprising that at the cabinet meeting on 13 April 2016 it was revealed that Shepway are now looking at 150 houses.

Nevertheless , given that the land available on Nickoll’s Quarry (which Shepway can purchase for £1) would be ready prepared with services, easier to develop and with no threat to the RMC, it still doesn’t make financial sense to put the new leisure centre on Princes Parade.

You can access the various reports here.