Agenda item

A report by the Executive Director of Place Services setting out the proposed decision to procure and enter into a Joint Venture partnership.

The Committee is asked to review, comment on and make any relevant recommendations for action to the Cabinet Member for Finance and Resources.

5.1  The Committee considered the property development arrangements report  from the Executive Director of Place Services (copy appended to the signed minutes). The Chairman welcomed Emma Davies, Director of Engineering, Design and Project Management (UK & Europe) at Faithful + Gould, who attended for this item.

5.2  The Cabinet Member for Finance and Resources introduced the report and highlighted key information for the Committee. The Council does not have the appetite for the risk involved in developing surplus land as the sole developer and therefore wishes to seek a development partner with expertise to assist; a Joint Venture (JV) arrangement would reduce the potential benefits of development by half but would also halve the potential risk to the Council. The PropCo Panel have considered the options and recommended entering into a JV partnership. The detail involved in this is to be explored over the coming 12-15 months as the Council need to maximise the potential return from surplus land, and the Cabinet Member will consider all points raised by this Committee.

5.3  The Executive Director of Place Services introduced the report and highlighted that there were three options available to the Council – to sell the land, develop it as the sole developer, or to enter into a JV and develop alongside a partner which is the preferred option. The Council wishes to avoid the risk of developers acquiring the land but not developing it due to uncertainty in the property market. A JV partnership option provides an acceptable level of risk and greater rewards than selling un-developed land, and developing surplus land sites over a long period of 15-20 years would help to smooth out the fluctuation of land prices. Initial set-up costs have been benchmarked against other local authorities who have entered into JV partnerships and the requirement is £700k.

5.4  The Committee made comments in relation to the property development arrangements report including those that follow. It:

·                  Noted the budget pressures being faced by the Council and acknowledged the need to fully explore income opportunities where possible in order to support services. Political and financial risks must be acknowledged in the use of reserves to maximise income and a more cautious approach taken compared to private investors, however development should proceed and residents wish to see vacant sites developed and used rather than sitting idle.

·                  Queried how much it is currently costing to maintain and provide security for the surplus land the Council is holding. The Executive Director of Place Services will provide an estimate of this cost to the Committee.

·                  Commented that the current PropCo programme arrangements work too slowly, and the Committee hope a JV arrangement would bring sites to development more quickly. Recognised that the current arrangements are not adequate and support changes to the process in order to benefit from new income sources. The Leader acknowledged Member frustration with the slow speed of the PropCo programme, and this highlights the need to proceed with the JV which would support development at a faster pace.

·                  Encouraged further scrutiny of the surplus sites to be included in the JV package and reiterated the need for local Members to be kept informed of developments in their local areas. The Leader assured the Committee that the local Member for a development would be included and engaged.

·                  Requested that progress of the JV partnership be scrutinised after 12 months operation, and before any sites are included for the second tranche of development.

·                  Acknowledged the need for up-front investment in the JV partnership but queried when the returns from the development could expect to be realised as funds are needed to support service provision now. There appeared to be a long gap between spending and returns. The Cabinet Member for Finance and Resources explained that the expected returns from the partnership are to assist with the Council’s anticipated needs in future years rather than current budget needs.

·                  Expressed concerns regarding the longer-term financing of the JV, the leveraging of Council land to fund the project, and the possibility of the Council needing to provide extra funding if the land isn’t of sufficiently high value. The Executive Director of Place Services explained a 50/50 JV partnership is essential as it prevents either partner locking out the other. The Council bring into the JV its surplus land, which would be valued via an agreed method during set-up of the JV, and the partner brings development knowledge. Therefore, if the land brought did not equal 50% of the cost the Council would have to top-up to 50% of the costs. Proceeding would be subject to an assessment of site viability and if this was not favourable then the site may either be held for future development, kept out of the JV or sold for a return. Ms Davies commented that developments won’t proceed where there is not a return as it is an equal risk for both parties.

·                  Commented that the potential to lend to the developer as a third party was a very high-risk strategy with public money and should be avoided.

·                  Stated that strong governance arrangements are key to the operation and success of the JV partnership and requested that the Committee review this at the appropriate time.

·                  Expressed concern that a ‘competitive dialogue’ procurement process is not used in selecting a JV partner. The Cabinet Member for Finance and Resources shared the Committee’s concerns.

·                  Queried what would happen if the JV partner went into administration and whether the Council would have to finance the programme in entirety. Ms Davies explained that up-front due diligence is important, and that the contract and supporting documentation will cover the eventuality of administration of the development partner. This may include the right for the Council to step into the contract with the sub-contractor which would save the Council money.

·                  Recognised that the decision presented needs to be agreed but felt further scrutiny is required before officers take the delegated decisions included within the report (recommendations 2 and 3). The Cabinet Member for Finance and Resources explained that there is a need to proceed with the decision in order to explore the JV option and address the Committee’s concerns, and that if the decision is taken it will be done so in full cognisance of the Committee’s feedback.

·                  Requested a further report is brought before the Committee when details of the partnership have been further developed, prior to tender documents being drawn up, and before the further Cabinet Member decision on entering into the JV partnership. The report should address the principles of the partnership, governance arrangements and cost/benefit analysis.

·                  Requested that the Committee’s Business Planning Group (BPG) be engaged in how the questions raised by the committee are answered and taken forwards.

·                  Highlighted the need to include the provision of affordable housing within the JV developments. This needs to be affordable to local people on an average wage, in addition to social housing. The Council should work with District and Borough Councils to achieve this. The Executive Director of Place Services explained that affordable or social housing must be looked at via the local plan and in line with policy, and is therefore a dialogue with local councils. The JV partnership would not be the appropriate vehicle for creating affordable or social housing as it would not maximise the income possible for the sites, however it could be considered on other surplus Council land not included in the JV.

·                  Expressed concern that there is no over-arching strategy for the Council to manage its land portfolio and recommended that a strategy is developed on how surplus Council land is dealt with and how the Council can include building affordable/social housing within this.

5.5  Resolved:

1)          That the Committee recognise the slow progress of developments and that options for maximising returns from assets need to be explored;

2)          That the Committee request a further report is brought before the Committee when details of the JV partnership have been further developed. This report should address the principles of the partnership, sites to be included, governance arrangements and cost/benefit analysis. This should be before any further decisions are taken and tender documents drawn up;

3)          That the Committee recommend that the local Members are consulted on sites to be included in the JV arrangement;

4)          That the Committee recognise governance arrangements for the JV partnership are key to its operation and success, and request that the Committee review this at an appropriate time;

5)          That the Committee request that a strategy is developed  on how the Council deal with surplus land and how affordable and social housing can be built into this;

6)          That the Committee raised a number of concerns which the Cabinet Member for Finance and Resources be asked to take into consideration ahead of taking the decision;

7)          That the Committee BPG be engaged in how the questions raised by the Committee are answered or taken forwards; and

8)          That the Committee recognise the decision recommendation no 1. in the report is to go ahead, however recommend that further scrutiny should take place before further decisions by officers (recommendations 2. and 3.) are taken forwards.