ROYAL NATONAL ORTHOPAEDIC HOSPITAL NHS TRUST
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TRUST BOARD
Discussion Paper on Stanmore site land sales
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1.
Background:
In April 2008 the Trust submitted an Outline Business Case for the redevelopment of the
hospital on the Stanmore site. The new build at Stanmore will consolidate the hospital
activities into a footprint of 19,402m² (plus retained estate) and will be positioned in the
centre zone of the 112 acre site. The business case also includes plans to dispose of
two areas of surplus land on the east and west end of the site, which forms part of the
Trust overall masterplan for the site. Currently the two proposed land sale sites present
the following operational and property issues:
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Unfit for purpose
Ageing and poorly maintained
Buildings have completed their useful lifecycle
Non compliant with statutory regulations
Increasing property risk liability and capital charge burden
Not contributing to service improvement and efficiencies
The key benefits of disposal include:
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Eliminate the need to upgrade the buildings to Category B
Reduce backlog maintenance liability associated with the site
Aid in delivery of national and local strategies such as NHS Estates Plan
Provide a capital receipt to be used as a bullet payment against the hospital
redevelopment costs
Site rationalisation
This discussion document aims to set out the key issues and outline the key actions in
respect of the disposal of land on the RNOH Stanmore site.
2.
Trust conditions of sale:
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The site is considered ‘green belt’ by the planning authority and the Trust
requires that the footprint allocated is not exceeded following sale. This is
necessary in order to protect the footprint requirements for the new hospital
development and future expansion space. The Trust aims to achieve this by
obtaining a detailed planning statement prior to the disposal of the two parcels
of land. If a developer gains overall gross internal area (GIA) concessions
over and above what the Trust has negotiated with the planners, the Trust will
be protected by overage provisions in the conditions of sale agreement.
3.
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Nominated rights for the continued provision of housing accommodation for
its key worker staff.
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Easement rights for service infrastructure running through the two plots
Planning and planning consent:
Lengthy discussions with the London Borough of Harrow Planning Authority have taken
place, with the planners supportive of footprint released on the east and west end of the
site to be used for housing development. Whilst the footprint is fixed (as the site is green
belt), they are willing to allow developments of 3 stories thus increasing the gross internal
area to circa 41,000m2. The Trust has received written support for this strategy from the
London Borough of Harrow Planning Authority (see attached). The Planning Authority
has also given the Trust concessions on affordable housing percentages, agreeing that
30% could be the starting point. They have indicated that should the expected receipt fall
short they would be willing to offer other concessions to enable our hospital development
to be affordable.
The Trust has also recognised that it will be important for the proposed redevelopment
package for the Stanmore site to be acknowledged by the London Borough of Harrow in
its planning policy documents. The current framework is provided by the Harrow Unitary
Development Plan (UDP). This will be superseded over a period of several years by a
series of Development Plan Documents (DPDs) forming a part of the Harrow Local
Development Framework. The first of these documents will be the Core Strategy for the
Borough. Public consultation on issues and options has already been carried out in 2007
and a fresh round of consultations is currently taking place. The RNOH project team is
engaging in this process to ensure that the Stanmore site and the principles of its
redevelopment are included in the final version of the Core Strategy. Following public
examination in mid-2009 this is expected to be adopted formally by the Borough Council
in January 2010.
The second of the DPDs will be Delivering Development, which will indicate site specific
allocations for development. It is important that the principle of redevelopment of the
hospital site is established in the Core Strategy, so that the detailed proposals can be
included in the Delivering Development DPD. This DPD will not be formally adopted until
early 2012.
This proposal will be developed between Outline Business Case and Full Business Case
stages together with the London Borough of Harrow Planning Department and will form
the revised outline planning application.
4. Valuation:
In January 2007 Drivers Jonas provided an indication of the potential disposal proceeds,
based on market conditions prevailing at that time. Drivers Jonas estimated that the east
and west end of the site to be worth in the order of £42m. This is based on 30%
affordable housing and a GIA 40,644m2.
Market conditions have deteriorated since the date of this advice and Drivers Jonas have
indicated that their appraisals are likely to show a reduced potential capital receipt if rerun using current market assumptions.
However, there remains an underlying demand for land opportunities such as the RNOH
site which are in good locations and can accommodate an appropriate range and mix of
unit types. Whilst Drivers Jonas’ current advice would be to wait before taking these
opportunities to the market, their expectation is that conditions will improve in the
timeframes envisaged by the land sales programme (see below). The Trust is also
updating these assessments with the Valuation Office Authority (VOA) and another
independent as part of the testing of the Business Case affordability.
5. Proposed land sales timescales:
The table below illustrates the land disposal programme:
Scheme
Land and property
disposals
08/09
09/10
10/11
11/12
12/13
13/14
14/15
West End land sales
East End land sales
6. Impact of the economy on construction and costs:
The construction industry workloads particularly in respect of house building have fallen
to their lowest in decades due to the current economic climate and this situation in the
imminent future is unlikely to improve. Our advisors believe the MIPS indexing will reflect
this downturn and even decrease over the next few years, therefore reducing the capital
build costs. The construction industry is likely to redirect its focus from commercial to
public sector which will increase the competition for schemes such as ours. Timing, we
consider our project will also be very attractive to the construction industry within London
as commencement coincides with the start of the 2012 Olympics.
7. Risk Mitigation Strategy:
The Trust acknowledges that the housing market is currently in a state of flux; however,
the RNOH site is in a prime residential location for top of the range housing. It is a well
sought after location as it is within easy access of London and the M1 and M25. The
Trust has been approached on a number of occasions by both property developers and
housing associations who are interested in purchasing these parcels of land for
development. These factors, even in the current changeable market, lead the Trust to
believe that there is still a strong potential to maximise land sale receipts.
The Trust’s Strategy prior to the land sales would be to obtain Outline Planning consent
on the east and west end of the site, thereby reducing the risk for the property developer
or purchaser. This will not only make the sites more attractive but also secure the
footprint for the hospital development.
It is also likely that the local planning authority will require the Trust to enter into a S.106
agreement which ties the enabling residential development with the development of the
hospital. By linking the planning and the sales, greater certainty will be created for the
Trust, the purchasers and the planners.
This should improve the quality of bids received and ultimately the unconditionally and
level of offers.
Furthermore, the sales of the east and west ends of the site are to be undertaken in two
phases; pre new build and post new build. The west end land sale as shown above will
not occur until 2010/11 and this timescale enables the Trust to closely monitor the
property market within the current economic climate. It also enables the Trust to develop
a robust marketing strategy to ensure maximum receipt is realised. Also, it will act as a
‘gateway’ check for the scheme prior to financial close because if the expected receipt is
not achieved the Trust’s fall back position would be to develop the hospital facilities in a
more phased approach.
Other risk mitigation strategies include the use of charity and fundraising monies. The
Trust has developed a fundraising strategy which includes the delivery of a £10m
fundraising target to contribute towards the redevelopment costs and based on our initial
discussions with donors this target is believer to be realistic. Currently £4m has been
donated and following approval of the Outline Business Case a co-ordinated approach
will be taken in order to maximise funds raised.
Other key challenges will be the need for services and staff based on the land for
disposal to be relocated plus the need for a significant amount of enabling works to be
undertaken. These elements have been included in the overall phasing plans for the
overall site masterplan.
At this stage we consider the RNOH to be well placed to manage these risks and our
commitment is to move forward at a pace which ensures that we do not expose the Trust
to a scale of financial risk which cannot be managed. This will include reviewing the
phasing and scale of investment as we move forward to Full Business Case (FBC).
8. Next Steps:
It is recommended that the following tasks should be undertaken:
1. Development of a Business Case for the disposal including option appraisals and
cost benefit analysis. The Business Case will also identify a clear disposal strategy
based upon considered options and conclusions, supplemented by the advice of our
property and legal advisers. The strategy will include consideration of the following:
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Identifying the optimum time to market and whether the Trust should market
as two individual plots or sell together with rights to use the east end until the
hospital redevelopment has been completed
Pricing the Market – taking valuation and agency advice to establish the likely
realisation value achievable
Determining whether either of the above (price and timing) could be improved
by undertaking any enabling works
Identify the most appropriate disposal process (tender, auction etc.)
Identify marketing and advertising strategies
Whether the market will perceive how much the Trust needs to sell property
thus influencing the price
Ensuring the Project Team understands the disposal strategy and maintains
the momentum to complete the process.
2. The Trust will need to establish a Land Sale Disposal Project Team which will include
the following membership:
Internal
 Trust Director of Projects, Estates and Facilities
 Trust Director of Finance
 Trust Capital Projects Manager
 Trust Project Control Manager
 Non Executive Director Lead
External
 Property advisors
 Planning Authority
 Legal advisors
 Financial consultants
The external team members will be appointed by tender process, likely to be through
the OJEU process.
3. A budget and project plan to be established that covers the whole programme of
disposals.
Mark Masters
Director of Projects, Estates & Facilities
July 2008