Strategic Acquisition in the Northern Gateway (Part A)
- Meeting of Resources and Governance Scrutiny Committee, Tuesday, 18th June, 2019 10.00 am (Item 26.)
Report of the Strategic Director (Development) attached
This report summarises the context and benefits associated with the provision of a commercial loan facility to Far East Consortium International Limited (FEC) to support strategic land acquisition as part of the Northern Gateway programme.
The Committee considered a report of the Strategic Director (Development), which summarised the context and benefits associated with the provision of a commercial loan facility to Far East Consortium International Limited (FEC) to support strategic land acquisition as part of the Northern Gateway programme.
The main points and themes within the report included:-
· The Council had entered into a Joint Venture (JV) with FEC in April 2017 for the comprehensive redevelopment of the Northern Gateway for housing and ancillary development;
· The Executive had previously y approved the Strategic Regeneration Framework for the Northern Gateway, which outlined the opportunity to deliver up to 15,000 new homes over a 15 - 20 year period;
· The JV had been preparing an infrastructure strategy with a specific emphasis on unlocking development sites over an initial five year period;
· There were some areas within the Northern Gateway area, most notably within the Phase 1 development area, where the JV partners would be seeking to make strategic land acquisitions to facilitate comprehensive development activity;
· Given the potential upfront costs associated with acquiring sites for future development, the parties had explored opportunities for a co-investment arrangement;
· The benefits that could be derived from co-investment in land assembly via a fully recoverable commercial loan (set at a rate of interest acceptable to both parties);
· The loan would be expected to be provided on a maximum loan-to-value rate of 50% with the Council having first charge on the land in order to protect its position and with a parent company guarantee provided by FEC; and
· The loan approach had the potential to facilitate delivery of the same, if not a greater quantity of new homes, at considerably lower risk, than if the Council were to acquire the land directly
The report was also to be considered by the Executive at its meeting on 26 June 2019.
Some of the key points that arose from the Committees discussions were: -
· Why was the Council proposing to lend money to FEC in order to purchase the land as opposed to the Council purchasing the land itself and using the it as a form of revenue stream until such a time that it was subject to a planning application/development;
· What steps had been or would be taken to ensure the Council still had some control over the use of the land;
· What additional capital outlay activities would FEC be delivering as a result of this co-investment proposal; and
· Would it not be more pertinent to await for the completion of the Strategic Business Plan before the decision to provide a loan to FEC was taken.
The Leader advised that as part of the partnership arrangement between the Council and FEC, both bodies were required to be co-investors within the Northern Gateway. If the Council were to buy the land, there would still be a requirement for land assembly and land reclamation in order to deliver the proposed development. By entering into a loan agreement with FEC, the Council was ensuring it would be able to deliver the same, if not more, new housing at a considerably lower risk than if it was to purchase the land itself.
The Committee was advised that FEC were already committed to putting a larger investment into the site when compared to the Council’s investment. The major control that the Council would have in ensuring the appropriate use of the land was that the Strategic Business Plan, would need Council approval before it could be implemented.
In terms of additional capital outlay activities would FEC be delivering as a result of this co-investment proposal, the Strategic Director (Development) referred to investment that FEC had already made in acquiring land for development across the city centre.
(1) notes the proposed approach to facilitating strategic land acquisitions within the Northern Gateway SRF area; and
(2) notes the proposals to provide a term loan facility to Far East Consortium as set out at minute RGSC/19/36.