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 has been published but has been so heavily redacted that we can’t see how the costs have been calculated.However we suspect 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 report here additional – financial viability report

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:

SPP Comment on Appendix 3

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

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 May 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.


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 with affordable housing) to £4.470m (low density, 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.