Report To Portfolio Holder for Strategy
31 July 2013
Subject:
Report on Sites C,E and F and purchase of property
within Basing View
Status:
Open
Report Ref:
Ward(s):
Eastrop
Key Decision:
Yes
Key Decision Ref:
836/SC
Report of:
Strategic Project Manager
Contact:
Simon Hope – Tel 01256 845560
Email simon.hope@basingstoke.gov.uk
Appendix 1 – Site Plan
The following Appendices are Confidential and not for
publication by virtue of paragraph of Schedule 12A of
Local Government Act 1972
Appendices:
Papers relied on to
produce this report
Confidential Appendix 2 – Site Plan for Acquisition
Property
Confidential Appendix 3 –Phase Proposal Drawings
Confidential Appendix 4 – Phase Proposal Financial
Implications and Heads of Terms
Confidential Appendix 5 Purchase Terms for Acquisition
of Property within Basing View
Confidential Appendix 6 – Risk Schedule
Report to the Basing View Executive Committee 25
October 2011
Report to the Basing View Executive Committee, 31 July
2012
Phase Proposal submission from Muse Developments Ltd
submitted 25 July 2013 (Confidential document)
SUMMARY
1
This Report
1.1
Outlines the basis of the first scheme proposal (Phase Proposal) submitted by
Muse Developments Ltd (Muse) under the regeneration partnership between
the council and Muse.
1.2
Outlines how the scheme fits within the wider Basing View regeneration
strategy.
1.3
Outlines the financial and legal implications relating to the Phase Proposal.
1.4
Provides an update and recommendation on the proposed acquisition of
property in Basing View.
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2
Recommendation
2.1
It is recommended the Portfolio Holder:
2.2
Agrees Site F is approved as an “additional site” under the terms of the
Development Agreement (DA), dated 19 December 2012.
2.3
Approves the Phase Proposal submitted by Muse for Sites C, E and F.
2.4
Agrees the Strategic Project Manager shall, in consultation with the Head of
Resources and Head of Legal & Democratic Services, be given the delegated
authority to progress the required legal documentation, in consultation with the
Portfolio Holder, relating to the Supplemental Agreement, Head Lease and
Agreement for Lease through to exchange of contracts, subject to proceeding
in accordance with the heads of terms in Confidential Appendix 4.
2.5
Approves the unconditional purchase of property identified in Confidential
Appendix 2, subject to the terms set out in Confidential Appendix 5 and the
release of £681,200 from capital programme provisions into the Property and
Finance Capital Programme.
2.6
Requests Council to approve the release of £125,000 from uncommitted
Growth Point Grant earmarked for Basing View Regeneration to fund the
costs mentioned in Confidential Appendix 5.
2.7
The Portfolio Holder notes the details of the council’s financial return as
explained in Confidential Appendix 4.
2.8
Agrees the Strategic Project Manager shall, in consultation with the Head of
Resources and Head of Legal & Democratic Services, be given the delegated
authority to conclude the legal documentation in respect of the property
purchase, subject to the strategy and terms set out in Confidential Appendix 5.
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3
Contribution to Council Priorities
3.1
This report accords with the council’s Budget and Policy Framework and
directly supports the Council Plan priority of improving economic vitality.
GLOSSARY OF TERMS
Term
Definition
DA
Development Agreement
BVEC
SA
Basing View Executive Committee
Supplemental Agreement
JLP
John Lewis Partnership Ltd
LPA
Local Planning Authority
DETAIL/MAIN CONSIDERATIONS
4
Background
4.1
The council and Muse entered into a Development Agreement (DA) in
December 2012 for a multi-site regeneration project following the selection of
Muse in a developer selection competition in 2011.
4.2
The 15 year DA allows the council to work with an experienced, wellresourced partner, who will pro-actively seek, secure and deliver new occupier
led investment to lead the transformation of Basing View.
4.3
The basis for the partnership was set out in the report to BVEC on 25 October
2011. In summary, the structure of the DA enables Muse to draw-down and
develop sites following the council’s approval of a business plan for each
phase of development. The DA sets out the financial and legal requirements
for the draw-down of sites.
4.4
Following the appointment of Muse (for the multi-site partnership), Muse have
been working on proposals for the vacant sites where there is identified
occupier demand and a basis for viable development.
4.5
Site C (see Appendix 1) has been an area of focus for Muse following
discussions with Waitrose. Initially Waitrose indicated a requirement to Muse
for a standalone store of circa 40,000sqft (3,720sqm) on Site C. Discussions
between Muse and Waitrose have subsequently evolved as a result of John
Lewis Partnership expressing a desire to locate a new combined store format
in Basing View, comprising Waitrose and John Lewis at Home.
4.6
Muse, together with their design team, has been working with the retailer to
explore how a larger store format could be accommodated with the western
area of Basing View (Site C and adjoining land). The discussions have now
reached an advanced stage, enabling Muse to submit a compliant Phase
Proposal to the council under the terms of the DA. This report contains details
of the Phase Proposal.
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5
Summary of the Phase Proposal
5.1
The proposed combined store scheme will encompass the eastern half of the
site area known as Site C and the whole of Sites E and F, see Appendix 1.
Creating the site area required for the John Lewis and Waitrose store will
necessitate the realignment of Norn Hill.
5.2
The location of the store will enable the residual part of Site C (see
Confidential Appendix 3) to be reserved for a future business class hotel
opportunity.
5.3
The proposed development will comprise a building of approximately
10,000sqm (107,500sqft), with the John Lewis at Home store 6,000sqm
(64,500sqft) and the Waitrose 4,000sqm (43,000sqft), together with
approximately 420 car parking spaces located on the roof of the building.
5.4
The development is designed to make use of the gradient of the site, with cars
entering the site from the top of Norn Hill/Upper Basing View. Lifts and
travelators will take customers to street level on Lower Basing View to the
store entrances. Service access will be from Lower Basing View to the rear of
the store. The scheme plans are contained in Confidential Appendix 3.
5.5
The two stores will comprise a full sized Waitrose trading from ground floor,
the John Lewis at Home store will trade from ground and mezzanine level.
The John Lewis store is primarily focused on selling furniture, furnishing
accessories, electrical and home technology. A Click and Collect service will
also available, which covers the full range of John Lewis products. The joint
store will also feature a café in the atrium, together with dry cleaners and a
cash machine service.
5.6
To date John Lewis Partnership has only opened one of the new format
combined store developments, in Ipswich last year. Basingstoke is planned to
be one of the next stores to open.
5.7
To create the site for the development will involve re-positioning Norn Hill to
the west of its current location. Muse and their design team have and are
continuing to review design options for the junction arrangements from
Eastrop roundabout and Norn Hill/Lower Basing View. The scheme proposals
will be evolved in discussion with the highway authority. The highway plan
attached in Confidential Appendix 3 shows an illustrative option. An important
aim is to provide a strong connection to the town centre whilst maintaining a
high level of vehicle capacity to accommodate existing and future retail and
business traffic on Basing View/Norn Hill.
5.8
Given the importance of the site as a gateway location to the Basing View
business area, the development will play a key role in setting a positive tone
for the wider regeneration project.
5.9
The proposed scheme will provided much needed amenity to occupiers in
Basing View and signal positive change with a high quality occupier, which
alongside other measures, such as the public realm works and rebranding,
will act as a catalyst for regeneration.
5.10
Significant emphasis is being placed by the council (as landowner), Muse and
the retailer on designing a building with civic presence. Enhancing the
pedestrian connections to the town centre is an important aspect that Muse
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and their design team are seeking to address to ensure the connectivity of the
scheme to the town centre and station is maximised.
5.11
Indicative scheme drawings are contained in Confidential Appendix 3. These
drawings will provide the basis for a subsequent planning application, though
the schemes design development will evolve through discussions between
Muse, the council as landowner and the local planning/highway authorities. It
should be noted Muse are responsible for leading the scheme design process
and obtaining planning permission for the development. This work will be
funded by Muse.
5.12
The council in its capacity as landowner will have an opportunity to comment
and approve (subject to consent not to be unreasonably withheld) the
planning application drawings, prior to submission to the LPA, under the terms
of the Supplemental Agreement between Muse and the council.
5.13
Setting the Phase Proposal in context with the Basing View Regeneration
Strategy
5.13.1 The masterplanning work undertaken by the council and subsequently Muse,
has highlighted the need to introduce additional complimentary mixed-uses
into Basing View. The masterplanning undertaken in 2007 and 2010 endorsed
by BVEC, highlighted the opportunity for larger floor plate retail provision at
the western end of Basing View.
5.13.2 Attracting JLP at Home/Waitrose represents an opportunity to secure a
leading retail brand which is complimentary to the Basing View regeneration
strategy approved previously by BVEC. Securing JLP is not only an important
endorsement for Basing View as a location, but also Basingstoke as a town.
The retailer’s presence provides an important opportunity for the town to
attract and retain more shoppers and support the economic development
strategy for the borough.
5.13.3 In terms of Basing View, securing the retailer as a first phase sends a positive
message to attract new companies to the area, as well as encouraging
existing companies to remain and invest. The 100,000sqft retail development
at the west end of Basing View, combined with the proposed 150,000sqft
Network Rail campus at the eastern end, provides tangible evidence of high
quality occupier activity to act as a springboard for further phases.
5.13.4 A continued objective of the regeneration project remains securing a business
class hotel. Although it is acknowledged there are presently challenges
making a hotel scheme viable, the hotel advisers for Muse and the council
believe the retail scheme should assist the hotel business case by increasing
the opportunity for attracting corporate office occupiers and the brand profile
of the location generally.
5.13.5 The remaining part of Site C not required for the retail scheme will be reserved
initially for 18 months as a potential location for a hotel scheme, see plans in
Confidential Appendix 3. During this period, Muse will commit to prepare a
hotel business case and continue to explore the level of operator and investor
demand.
5.14
Phase Proposal – Outline Programme
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5.14.1 Exchange of conditional contracts for the Agreement for Lease and
Supplemental Agreement is anticipated by mid-September.
5.14.2 Muse propose undertaking formal planning consultation in early/midSeptember.
5.14.3 Muse is targeting submission of a planning application in October.
5.14.4 Subject to the progress of the planning application it is anticipated works could
start on site in summer 2014, with completion of the scheme by autumn 2015.
6
Proposed Property Purchase
6.1
The council exchanged a conditional contract to buy the subject property
identified in Confidential Appendix 2 in October 2012, based on terms
approved by BVEC on 31 July 2012. BVEC recommended that Full Council
agreed to the purchase, which Full Council resolved to do on 11 October
2012, subject to the terms of the BVEC report.
6.2
BVEC agreed Portfolio Holder consent would be sought prior to the end of the
conditional contract period to determine the appropriate course of action.
6.3
The proposal is to for the council to proceed to purchase the property
unconditionally subject to the purchase terms approved by BVEC in July 2012
and the Basing View Invest to Grow budget of £681,200 approved by Council.
6.4
In the report to BVEC of July 2012 it was agreed in Confidential Appendix 4
that Portfolio Holder consent would be sought on the recommended course of
action prior to the end of the 12 month conditionality period. Subject to
approval to the recommendation in this report, notice will be served by the
council to waive the contract condition that entitled the council not to proceed
with the purchase until planning permission had been obtained. This would
enable the council to complete the purchase 3 months from the date when the
council serves notice to complete the unconditional purchase.
6.5
Following completion of the purchase, subject to obtaining statutory
permissions, the intention will be to demolish the property in preparation for
the regeneration works. The estimated costs of holding and demolishing the
property are £125,000 and Council is recommended to agree that this is met
from uncommitted Capital Growth Point Grant allocated to Basing View
Regeneration.
6.6
Officers are recommending the council proceed to acquire the property
unconditionally, subject to the terms set out in Confidential Appendix 5.
7
Financial Implications
7.1
John Lewis Properties plc (JLP) will acquire the new store on the terms set out
in Confidential Appendix 4, subject to a head lease from the council. Muse will
build the development to a pre-agreed specification in part from its own equity
resources and in part from payments received from JLP during the building
process at pre-agreed milestones.
7.2
Details of the council’s indicative financial return are explained in Confidential
Appendix 4. The financial return is calculated in accordance with the DA
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between the council and Muse and subject to the scheme specific aspects,
which will be documented within a Supplementary Agreement (SA).
7.3
The calculation of the council’s land receipt is subject to two valuation stages.
The Initial Appraisal Stage, i.e. now at the Phase Proposal stage and
secondly, the Final Appraisal stage prior to the SA reaching the point of
unconditionality. Beyond the council’s land receipt, the council is entitled to a
50% share of any surplus profit in the scheme (emanating from the
construction phase) over and beyond a pre-agreed priority profit to Muse.
7.4
It should be noted the council’s land receipt will be fixed at the Final Appraisal
stage. In the meantime the council’s land receipt can fluctuate (up and down)
between the Initial (i.e. now) and Final Appraisal stages, reflecting a more
accurate assessment of the costs by the Final Appraisal stage. However the
council’s land receipt is subject to a minimum value test. The land value
generated by the scheme must be equal to or higher than the council’s book
value and the receipt must meet the best consideration requirements of S123
of the Local Government Act 1972.
7.5
Once the Final Appraisal has been completed this will set a minimum value for
the capital receipt due to the council. This amount could increase if there are
savings in construction costs, but will not reduce. The timing of the land
receipt is addressed in paragraph 8.4.
7.6
The use of the capital receipt generated from the sale of the site to JLP will be
considered as part of the council’s budget strategy process.
7.7
As explained in Confidential Appendix 4, the council has been advised on the
Muse costs contained in the Phase Proposal by Mace Group Limited. This
advice was funded from the revenue budget for Basing View.
7.8
Funding for the proposed property acquisition was agreed by Council
following a report to the Basing View Executive Committee on 31st July 2012.
The additional costs of demolition of £125,000 can be funded from
uncommitted Growth Point Capital Grant already allocated for Basing View
Regeneration. The funding will be repaid by Muse when the Supplementary
Agreement becomes unconditional. This is expected to be during 2014. The
purchase of the property increases the value of the wider site as set out in
Confidential Appendix 4.
7.9
There is a potential risk that the council acquires the property but the Muse
scheme does not proceed or is delayed. In this case the council’s ability to
recover the sunk costs would be deferred until a development scheme
progresses.
8
Legal Implications
8.1
Under the governance arrangements approved by BVEC on 25 October 2011,
the drawdown of sites and approval of site specific scheme proposals under
the partnership is dealt with by:
8.1.1 The Steering Group approving the terms of the proposal;
8.1.2 Following approval of the Steering Group, Portfolio Holder consent is then
sought.
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8.2
If the Portfolio Holder approves the Phase Proposal, the council and Muse will
then enter into a conditional Supplemental Agreement (SA) to cover the legal
obligations relating to the proposed transaction. In parallel, Muse will proceed
to submit a planning application.
8.3
The legal agreements governing the development of the site will be a
conditional Supplemental Agreement to the Development Agreement
exchanged on 19 December 2012, together with the conditional Agreement
for Lease. Muse will be under an obligation to fulfil the contract obligations
within the long-stop dates specified in Confidential Appendix 4. The council
will also be under obligations under deliver vacant possession of the site and
land assembly.
8.4
Assuming the pre-conditions contained in the SA and Agreement for Lease
have been met, the SA and Agreement for Lease become unconditional. This
is the point at which Muse will commence construction and the council will
receive its land payment and reimbursement for property acquisition and
demolition costs set out in Confidential Appendix 5.
8.5
In the event there are material variations to the financial and legal terms set
out in Confidential Appendix 4 (prior to the SA and Agreement for Lease
becoming unconditional), the material variations will be reported to the
Portfolio Holder for approval or otherwise.
8.6
The council will sell a long leasehold interest to JLP. The terms are contained
in Confidential Appendix 4. Muse will be granted a Licence to occupy the site
to undertake construction of the scheme, including constructing the re-aligned
Norn Hill.
8.7
As JLP are acquiring the effective freehold of the site, the council’s ability to
impose long term restrictions on the future use of the development is more
limited and explained in Confidential Appendix 4.
8.8
To create the development site will require the inclusion of Site F, as well as
Sites C and E, which are designated as “core” sites included within the DA.
The DA between the council and Muse contemplated other “additional” sites
within Basing View becoming part of the regeneration partnership to help
deliver a comprehensive approach. Site F meets the financial and land use
criteria for being classed as an “additional site” and the site is recommended
for inclusion within the Phase Proposal.
8.9
The proposed property purchase would be undertaken by the council serving
notice on the vendor under the terms of the purchase contract. The council
are not required to complete the purchase until the vendor has delivered
vacant possession of the property.
9
HR Issues
None
10
Equalities
As this decision does not create or amend a policy, strategy or service, no
equality impact assessment has been carried out.
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11
Risks Identified
11.1
Confidential Appendix 6 identifies the principal risks and comments on the
controls that are proposed to mitigate the risks in an acceptable manner
where possible. Key risks highlighted include:
11.1.1 The council’s financial return will be affected by the complexities associated
with the enabling works to create the development site. This involves a
significant amount of civil engineering and service diversions. However, the
council’s land receipt will be fixed prior to construction works commencing.
11.1.2 Remediation costs of the former gas works site will be assessed following the
site investigation works and may have an impact of the level of the council’s
financial receipt.
11.1.3 The timing of the council’s land receipt and reimbursement of costs will
depend upon the progress made by the developer to meet the contract
conditions, including obtaining planning permission and a road closure order.
11.1.4 The level of the council’s financial return will, subject to meeting the stated
minimum requirements, be dependant upon the eventual tendered
construction costs.
12
Conclusion
12.1
This scheme represents an important first phase for the Basing View
regeneration project and has the potential to act as a significant catalyst for
attracting further investment into Basing View.
12.2
Attracting the new format John Lewis at Home and Waitrose store will
represent an important investment for the town as a whole, bringing added
value for the town’s wider economy. The scheme will deliver in the region of
300 jobs and help attract more retail and leisure expenditure for the town
centre.
12.3
The scheme is in line with the vision and project objectives of the Basing View
Annual Business Plan and meets the financial and legal requirements of the
Development Agreement.
12.4
It is recommended the Phase Proposal and property acquisition is approved,
and that the council proceeds to conclude the required legal agreements (and
agree that Site F is accepted as an “additional site”) to facilitate both
transactions in accordance with the terms set out in this report.
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