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.