Friday, 13 April 2012

The Royal Sands Development on the Pleasurama Site in Ramsgate on the front of The Gazette.


The ongoing saga of the Royal Sands is the subject of the lead article in this weeks Isle of Thanet Gazette, you can read the story online at http://www.thisiskent.co.uk/Thanet-council-negotiates-pound-3-3-million-deal/story-15803551-detail/story.html and for a local paper story covering a very complicated subject in a very few words it goes some way to getting at the financial issues.

As Councillor Simon Moores has already stated on his blog that the council’s secret documents on this issue have leaked out, see http://birchington.blogspot.co.uk/2012/04/on-royal-sands.html I have to tread the unusual line here of talking about a council secret, that isn’t really a secret anymore, but the council still seem to saying is a secret.

Before anyone considers that there may be party political implications here, the secret council documents that related to the secret cabinet meeting also leaked out when the Conservative cabinet discussed the issue three years ago.

Anyway I will try to summarise the situation in as few words as possible, which I hope will enhance the information in the newspaper article.   

I think that when the development was first approved by the council the idea was that it should be mainly a leisure development, in this instance the leisure elements being the retail units along the front of the ground floor of the development, the majority of the ground floor is car parking for residents, so these are not that significant and the hotel at the harbour end of the development.

I think the council view this hotel as being the key aspect of the development with regard to trying to regenerate Ramsgate, and every document that the council have produced on the matter seems to include clauses to ensure that when the residential part of the of the development is built, the developer doesn’t just take the money and run.

The key documentation here is the development agreement, which is in the public domain, see http://www.michaelsbookshop.com/pda/ I have published it there in a series of linked internet pages, it’s long and complicated.

After the buildings on the site burnt down, the council made a considerable effort to recover the leasehold from Jimmy Godden, this they finally achieved over ten years ago.

Then they accepted a proposal put forward by Whitbread with SFP as partial financiers but unfortunately Whitbread pulled out and SFP changed the design of the project.

This happened during the change of administration from Labour to Conservative and during the confusion plans got approved for the current development in January 2004, at the time the plans were for a development that was too tall to fit in the available space and this has presented various problems during the last ten years.

The cost of building the whole development is in the region of £22m and the idea was that the developer had £10m available either in cash or by borrowing it from third party funders, the remaining £12m coming from selling the departments as they were built.

The council was to have been safeguarded against the developer going bust by the developer having a performance bond, which essentially is an insurance policy issued by a bank. The idea being that if the development wasn’t completed the council would have enough money to finance its completion.

The performance bond would have covered the development for £5.6m and as the council were reasonably financially covered they signed the development agreement in October 2006.

The basis of this was that the council granted 199 year leases and the council got paid for the land by getting £15,500 for each apartment sold, 50% of whatever the developer could get for the commercial leases, probably not much, value for commercial leases tends to relate to the benefit of having an old lease to sell with a below market rent.

Anyway in 2009 the developer came back to the council because he couldn’t get the performance bond i.e. the insurance policy to cover the council’s liability if anything went wrong.

What the developer asked to do was to deposit £1m in a council bank account instead of producing the £5.6m insurance policy.

On 16th June 2009 this came before a secret cabinet meeting with recommendation from the council officers to the cabinet to take back the land from the developer and not proceed with the development.

The cabinet decided instead to let the developer proceed with the development on the basis of the £1m deposit.

The forward funding at this time was to be £1.5m from the contractor, £5m from the hotelier and of course the £1m in the council bank account.

At this time the land was valued at £13.6m

Now the developer has come back to the council again and this time seems to be saying that they can’t raise the money from the third party funders so what the developer is proposing is that the council sell them freehold of the land for a payment of about £1.6m now and a further payment on the sale of each apartment totalling about £1.6m plus any amount relating to the commercial property.

This would then give the developer the land worth about £13.6m that the could raise money against.

At the moment the other council liabilities are maintaining the cliff façade that they have already spent £1m on, and the sea defence.

I have several concerns here the main one being is that this plan relies, at several stages, upon borrowing money against building land in a high risk flood zone, that has no flood risk assessment.

Another is that the hotel would no longer be guaranteed to be built first and as it is to be built in front of the part of the cliff that the developer’s contractor has partly surveyed and found to be faulty, this may be a hindrance to building the hotel.

I will try to add to this if anything else occurs to me that may help people understand the issue.

39 comments:

  1. Michael - I am advised that the foundations to the Hotel have been fully designed and the Hotel is ready to go. The cliff face has no implications to current progress on site. Previous press releases have confirmed that the Hotel operator does not want to open the Hotel 'next to a building site' which makes perfect logic. You appear to be once again conjuring up conspiracy theories which do not not exist. The £1million pound cash deposit which you refer provides far better surety than any Insurance backed Bond would provide. Insurance companies are notorious at hiding behind the small print of Bond documentation.Indeed one of the largest UK based Bond/Insurance companies went bust last year. The fact that SFP have put hard cash in the pot as surety shows huge intent. You report the Developer is now going to pay for the freehold of the site 'upfront' whereas before under the previous development agreement it gave him the opportunity NOT to have to pay the final overage on completion. Looks like a very good tactical manouvre from TDC. WELL DONE

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    1. 11.05 sorry about the time stamp, I didn’t think I was conjuring up conspiracy theories which do not not exist, or even do not exist, as I assume the double negative was unintentional.

      Was there something in this post that you disagree with? My intention here was only to clarify the financial situation that wasn’t entirely clear in the press article, I did my best to get it as concise and accurate as I could, while keeping the information that could be problematic for those involved, private contact details, bank details and so on, out of the public domain.

      I guess until someone tells me how anyone would obtain a mortgage for a new build apartment, on an EA designated high risk flood zone, without a flood risk assessment I am likely to be sceptical about the financial plan.

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    2. I have read thro the portal of information on your blog and I note that within the Planning Consent for the scheme there was not a requirement for a flood risk assessment on the basis that the EA did not require one. My friend has just bought one of the Flats at Granville Marina and he obtained a mortgage without any difficulty.

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    3. The new build on Granville Marina has a flood risk assessment. The older ones probably wouldn’t require one and would be treated like all buildings built before the location was designated.

      The link takes you to the EAs position on the subject http://www.michaelsbookshop.com/ea/id2.htm as TDC cast doubt on the EA specialist’s expertise, I got Roger Gale and Laura Sandys to get further written confirmation from the EA at the highest level, I can also publish it if there is a question of doubt over this issue.

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    4. Michael you are 100% right....Planning and Building Regulation authorities cannot crystal ball gaze legislation that may become relevant in 100 years time

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    5. No planning permission 100 years ago, a present for you and your friend http://www.michaelsbookshop.com/gt/id7.htm incidentally when we have severe winter storms it is sometimes necessary to sandbag the front perimeter of Granville Marina properties.

      In the remaining old ones the first floor joists are supported by the brick viaduct and form a safe haven in pretty much any storm the sea can throw at that part of Ramsgate.

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    6. Thankyou.Agreed. I rest my case. have a good weekend. Best Regards.

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    7. Nor sure what your case was, but have a good weekend too.

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  2. I have just been offered a job on the site. Its a two year contract and my boy has also applied for an apprenticeship on the site. I am told that there are a number of vacancies. Great news for the construction industry.Its about time we had some goood news.

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  3. Anon, I suggest that you and your boyfriend look out for other job vacancies, as I can't see this one going ahead as scheduled.

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  4. 11.52 Anon, Homophobia is useally the first sign of 'coming out' look forward to your announcement

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  5. 11.12 11.52 12.01 What worries me here is your assumption that everyone involved in the construction industry is male.

    I don’t think that once you have made that step assuming everyone male is gay could be construed as homophobic, however please try to be less sexist.

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  6. Michael - thanks for your post and point. You are right 11.52 was not being homophobic....on reflection he was suggesting that my son was my boyfriend......not nice....

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  7. Michael

    I thought the article in the Gazette was very positive news, especially in these cash strapped times.

    Firstly, as a community an extra £3.3m in TDC’s budget will certainly help the situation locally with the cash being available to spend on public amenities.

    Secondly, this further reinforces the commitment of SFP to complete the project, injecting support to the local community by way of jobs, increased spend and opportunities.

    Whether the deal was done in secret or not has no bearing, the fact that the cabinet has seen an opportunity in providing a solution which would allow the site to be completed with no risk to the public purse is.

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    1. Think perhaps you need to have a bit of a reread, the deal wasn’t done but has been referred to a future meeting date unknown, the council don’t get £3.3m if the deal is done they probably get about half that figure, and then an undecided amount for each apartment when it is completed.

      The financial situation so far is that the council have spent about £1m on the cliff, SFP have deposited £1m which the council can’t use for anything.

      If the deal is done the council retains all the liability for the cliff and sea defence, so anything the council would have to spend is a bit uncertain, which is one of the reasons I would like to have both structures assessed.

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    2. This comment has been removed by a blog administrator.

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    3. 2.59 sorry unsubstantiated anonymous comments inferring officers have taken bribes, no tolerated and here could potentially cause you difficulty using blogs in the future

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  8. Ahhhh...no mention of the overage agreement?

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  9. The cliff and the sea defence will always be TDC's responsibility...deal or no deal!

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    1. Very true, which is why we haven’t got other developments between the cliff face and the sea wall, I would say the notices saying don’t sit under the cliff are an indicator here.

      The problem is the costs of maintaining both structures to a standard where people can live in this location for the life of the development. Yes a fantastic location with amazing views, whether the increased costs of ensuring both structures are maintained to a standard appropriate to a residential development being between them, for the next hundred years, should be met entirely out of our council tax is another matter.

      Going into this situation without any knowledge of the 1860 sea defence, no plans, no maintenance records, is an example of what I mean here.

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    2. I AM RELIABLY INFORMED THAT TDC GET THE WHOLE 3.3 MILLION UPFRONT

      ALSO THE RATES ON 107 APARTMENTS A HOTEL AND THE RETAIL WILL ALSO BRING IN A TIDY SUM TO THE COUNCIL COFFERS

      ITS A WINNER

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  10. So this message string is not ablout the front page of the Gazette it's about what happened in 1860... Have you any information about what occured befor 1860 on which at the very least the law of average can be based, was there a similar flood in 1675 or will you used global warming in your calculation?

    The cliff has been stablised, refaced, had the surface water diverted and painted....is it still going to fall down?

    As for TDC's ongoing responsibility for the cliff, council's up and down the land cope with being situated on the coast and I`m sure they all make provisions for future repairs and maintenance.

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    1. Not really 5.49 it just happens to be the oldest sea defence in Thanet, discounting the harbour, it dates from 1860 and happens to be in front of the development, I used it as example of the liability problems facing the council.

      It looks to me from your comment that you have been trying to grapple with the various cliff surveys at http://www.thanetonline.com/cliff/ your mention of painted water is sure sign.

      To answer you question, is the cliff going to fall down, there have been quite a few major cliff collapses in Ramsgate since WW2 involving cliff façade structures, so it is a possibility. In this instance the cliff façade isn’t a cliff support structure, so we are talking about an unsupported chalk cliff and I guess eventually unsupported chalk cliffs collapse, which is probably why it isn’t recommended to sit under them.

      I think the problem here is much more about the cost of ensuring that the cliff is very unlikely to collapse during the life of the development, ensuring it will never collapse isn’t an option.

      In terms of the councils up and down the land, if you know of another instance of a large modern residential development between the shoreline and the cliff face it would be very useful all round and could help in getting a lot of the problems with this development resolved.

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  11. I AM RELIABLY INFORMED THAT TDC GET THE WHOLE 3.3 MILLION UPFRONT

    ALSO THE RATES ON 107 APARTMENTS A HOTEL AND THE RETAIL WILL ALSO BRING IN A TIDY SUM TO THE COUNCIL COFFERS

    ITS A WINNER

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  12. It's not a matter of "if" the cliff falls down, just a matter of "when".

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  13. 8.12 capitals is construed as shouting on the internet and considered rude, which I assume was unintentional.

    The documentation I quite clear half on the sale of the freehold and an undecided figure apportioned as overage on sales of apartment and anything paid for leases.

    The council don’t get anything more or less from rates, I assume you mean business rates as domestic rates were abolished years ago, central government decide what proportion of the whole of the country’s rates will go to the council.

    TDC will get about 15% of any council tax on the apartments if that is what you mean.

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  14. The benefit to Thanet will not be the extra £35,000 rates income but the removal of an eyesore which is putting visitors of from visiting the Royal Sands and thus the rest of Ramsgate. And much of the £35,000 will have to be spent on services for the new residents. Have I missed something here or is the hotel group being a little shy in revealing who they are? I remember that when Travelodge came to Ramsgate it was announced well in advance presumably for maximum publicity and until they pulled out it was the same for the proposed hotel at Margate FC.

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    1. In the secret documents that related to the secret cabinet meeting three years ago the company financing the hotel was named and the £5m that they had agreed to put into the development was the largest component of the forward funding packet.

      There is no mention of them or the £5m in the secret documents relating to the current series of secret cabinet meetings.

      I guess the important thing for me is to ensure that if the council sell the developer the land worth £13.6m for something in the order of £3.3m with only about half of this sum as a down payment so that the developer can use owning this freehold to guarantee a loan to build the development, then the plan is at least partly viable.

      If anyone can explain how it would be possible to get a mortgage for a new build on a high risk flood zone without a flood risk assessment then it may not be necessary.

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  15. Where do you get that the land is worth 13 million. Based on current land prices the site would be valued at about 2.5million only.

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  16. So ... TDC flog the site ... so that, in a few years time,when the 'promised development' still hasn't happened, they will need to apply for a Compulsory Purchase Order so that they can regain control.
    Sorry, TDC and 'control' should never be seen together!
    Just look at their track record regarding Dreamland.
    They have form!

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  17. The poster who said about A hotelier not wanting to sit next to a building site. How about opposite a decaying piece of Victorian seafront vandalism currently being vandalised itself?

    I'd say the £3.3 million could easily be swallowed up, and some more, on getting this eyesore fixed, occupied and tidy before a hotel even thinks about moving in.

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  18. Anon 02.02 questions the valuation of £13 millions.
    Building plots in East Kent can be had for £90,000 each.
    So 107 plots woud be worth £9.6 millions. Add in the value of the Hotel and retail sites and I am sure that you would reach £13 millions.
    But as a site that just provides a sea front car park, a garden and a few beach huts you would be struggling to make £1 millions.

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    1. Make your mind up. One minute its a crap site thats going to flood at any minute....and then next minute it is prime residential land worth millions

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    2. My valuations were along the same lines and based partly on the documentation, less that £1m as a car park, possibly £2m to £3m as an amusement park around the £13m as a residential development site with a flood risk assessment a cliff façade survey and sea defence survey giving a reasonable usable life to the life to a standard suitable for a residential development.

      It is after all the prime leisure site in the town, as Dreamland is in Margate, as it directly faces the main sands probably more so. The future of Ramsgate as a leisure destination hinges on what is available there to entertain tourists.

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    3. Exactly. So Royal Sands brings us a Hotel, shops, cafe culture visitors, jobs,tourists and this provides the money and confidence which then leads to the redevelopment of the Pavilion buildings into a 'Turner' style gallery/arts centre.

      Regeneration, regeneration,regeneration.

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    4. Pleeaaase, not another art gallery!

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  19. The way you value the site is to invite bids. My understanding is that SFP were not the highest bidders at the time when the original contracts were signed. This was never satisfactorily explained. If there is any suggestion that the purchase price is being reduced further, the whole project should be cancelled and the Council should invite fresh bids for the site.

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    1. If what Michael Childs has published is correct then it looks like SFP are paying the full asking price. It is well known that land prices have dropped 40% since the deal was originally done. So TDC have played a blinder.

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    2. But who actually valued the land, has anybody else been given the opportunity to purchase it or make a bid for it.

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