Watford Junction Viability Study 2016
Watford Junction Viability Study 2016
Representation ID: 712
Respondent: LaSalle Investment Managmenet (LaSalle)
Agent: GERALD EVE LLP
Wants to provide greater input into the viability appraisal for the development brief going forward, to work collaboratively with stakeholders and be updated on timescales.
please see attachment
Watford Junction Viability Study 2016
Representation ID: 730
Respondent: HSBC Bank Pension Trust (UK) (HSBCP) Limited
Agent: PowerHaus Consultancy
Assumptions in the PBA viability appraisal are fundamentally flawed and the conclusions are misleading and is a major concern. Examples are given and it is noted that these view has been reported on a number of occasions. The viability assessment should reflect a more accurate position
We write on behalf of HSBC Pension Trust (UK) (now referred to as HSBCP) Limited, the freeholders of St Albans Road Retail Park, St Albans Road. It is a site located within the Policy SPA2 Watford Junction regeneration area and is a successful retail park occupied by TK Maxx, Staples and The Range. The HSBCP site has a high existing use value and trades well. It has permission for up to 11,855 sq. m of retail floorspace of which 2,316 sq. m is yet to be constructed. There are further asset management initiatives that could be pursued, to enhance the existing use value as an alternative to redevelopment.
As Watford Borough Council, (now referred to as the Council), will know, the area has been considered for comprehensive redevelopment over many years and two masterplan initiatives worked up with other main landowners and in close consultation with the Council have proved not to be viable. We recognise that the Council need to mitigate the impact of the development. However, unless the scheme is viable and commercially appropriate then the HSBCP site will definitely not come forward for development.
HSBCP has strict responsibilities to its Pension Trustees and shareholders. There is a duty to both safeguard and, where appropriate and achievable at minimum risk, enhance the value of the asset for the pensioners. One alternative to asset management and redevelopment of the existing retail uses would be to pursue a residential-led option. It is important to note, however, that residential development on the scale proposed is high-risk and hence any prospective returns would need to be significantly in excess of the present value, which is already substantial, in order for HSCBP to justify pursuing such an option.
HSBCP is working with Be:here Ltd and Prime Place Developments Ltd as their preferred delivery partner to explore the potential for residential led redevelopment. By way of introduction, Be:here and Prime Place are subsidiaries of Willmott Residential, which has a long track-record for transforming large areas through residential-led regeneration. Prime Place deliver homes for sale and Be:here develop and undertake the long term stewardship of homes for the rental market. This unique combination significantly accelerates delivery, creates an environment where people want to live and provides a balance of tenures with a range of homes that cater for different levels of affordability.
Please note, however, the decision on whether to pursue a redevelopment or retain the site as a retail park has not been determined and is dependent upon whether it is commercially appropriate to do so. It is absolutely critical that the Council recognise that there will need to be a strong commercial justification for HSBCP and other landowners to redevelop their sites; otherwise the masterplan will not be delivered.
A number of meetings have been held with the Council to discuss the potential development of the site, as a catalytic first phase of the wider Watford Junction Major Development Area. In addition, HSBCP has been represented at four further stakeholder meetings with the Council over the last year to engage in the process of the emergence of the Watford Junction Brief, however, few of the comments and information exchanged has been reflected in the draft documents. The Council is therefore urged to re-consider this position, and prepare a more supportive and deliverable Development Framework that particularly supports the early,
catalytic phases of development and recognises that these will not occur if they are overly burdened by upfront expenditure.
Overall, HSBCP and their delivery partners are supportive of the production of a Watford Junction Development Brief and the Council's vision and desire to transform the SPA2 regeneration area. However, it is felt that many of the assumptions within the PBA Viability Appraisal, which supports the BDP masterplan, are fundamentally flawed and the conclusions are grossly misleading. The degree to which the Viability Assessment is out of touch with the current commercial market is a major concern and raises serious questions about whether agreement between the Council and the individual landowners will be possible.
The Development Brief has to respond to the commercial realities of bringing forward such a significant regeneration in order for it to be effective, and fundamentally it has to support delivery, particularly in the early stages, by setting achievable principles, and minimising commercial delivery risk. Unless a more realistic position is adopted then it is questionable whether the regeneration of the SPA2 area will actually come to fruition. Further more specific comments are outlined below.
The introduction of the Draft Development Brief refers to previous redevelopment plans for Watford Junction since the 1970's, which pivoted on delivery and viability challenges. This remains a key consideration for this version of the Development Brief and it is critical that it acknowledges the need for phased delivery and that the HSBCP site could be the first catalytic phase. A comprehensive approach remains undeliverable without the significant input of public monies to assist in the provision of critical infrastructure. The Development Brief should be amended throughout to reflect phased delivery of each potential development site.
In accordance with the requirements of the NPPF (paragraphs 173 and 174) the risk, cost and resource commitment associated with any development opportunity needs to be worthwhile to the landowner, otherwise the incentive to bring forward development would not outweigh the existing use value and retention of the site in its current form. The NPPF particularly states:
'Plans should be deliverable. Therefore, the sites and the scale of development
identified in the plan should not be subject to such a scale of obligations and policy
burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to be applied to development such as requirements for affordable housing, standards, infrastructure contributions or other requirements should when taking account of normal cost of development mitigation provide competitive returns to a willing landowner and willing developer to enable the development to be deliverable.'
Paragraph 174 of the Framework continues:
'...In order to be appropriate, the cumulative impact of these standards and policies
should not put implementation of the plan at serious risk and should facilitate
development throughout the economic cycle....'
As advised above, the HSBCP site has a high existing use value and benefits from planning permission for further extensions to the retail park. The Viability Appraisal prepared by PBA on behalf of the Council, to support the Draft Development Brief, notes in section 3.3.1 that, "a reasonable benchmark land value could be considered in the region of £3m per net hectare across the whole masterplan area". This significantly underestimates the existing use value of the HSBCP site, let alone the potential value at which HSBCP would consider a sale of its asset. It is expected that other landowners will have a similar opinion. By way of illustration, the current estimate of the existing HSBCP use value is close to five times the value that PBA
have adopted. This message was reported to the Council and PBA on a number of occasions prior to the Viability Appraisal being issued.
The Viability Appraisal by PBA also sets out various other assumptions in section 3 (Viability Assumptions) that are considered to be inappropriate. As an illustration, in section 3.2.1 PBA stipulates that residential build costs for flats (6 stories and above) are £1,700 per sq. m.
Evidence supplied by Be:here and Prime Place, suggests that the PBA estimates are a significant underestimate of the true delivery costs, especially if the Council has aspirations for a high quality of design, with extensive public realm and landscaping. Recent tender information for similar developments suggests that the actual cost for buildings over six storeys would be in the region of £2,300 per sq. m GIA, excluding fees and abnormal costs.
Whilst it is appreciated that the Viability Appraisal covers a large area in multiple ownerships, the allowance for abnormal costs is unlikely to be sufficient, given the character of the area.
Certainly, the assumption of £500,000 per net hectare in Table 3.7 would not be sufficient to cover remediation and other abnormal costs on the HSBCP site. This has also been communicated to PBA in consultation at their offices in Bristol.
Table 3.8 includes a list of infrastructure items and estimated costs that have not been calculated by PBA and have been taken from third parties, although the sources are omitted.
Further information should have been provided to determine whether these costs are
appropriate, such as whether the cost of the two schools include the cost of the land as well as construction costs, as well as a more detailed assessment of cost of facilities at and around the station which seem low.
The Viability Appraisal concludes:
"The viability position identifies that a surplus of some £31m is available from the
scheme, which could be used in contributing towards associated infrastructure items
which have not been included in costing the scheme.
The Council have identified five large infrastructure items which potentially need to be provided within the Watford Junction development area, and the approximate estimated £56m total cost for these items has been compared to the overall residual value of the scheme. This appraisal concludes that the headroom falls only marginally short of being able to fund all of the infrastructure item costs, and should the proportion of policy compliant affordable housing reduce from 35% to being closer to 20%, then the scheme would have more chance of meeting the costs in full.
But should it be in the Council's interest to ensure that the scheme is policy compliant and that it does deliver the required 35% affordable housing, then external funding is likely to be needed to plug the gap in funding the big ticket infrastructure items."
As noted, it is felt that many of the assumptions adopted by PBA do not reflect current market prices and, therefore, the conclusion of the PBA report is misleading.
The Viability Assessment should reflect a more accurate position, to enable the Council to have a realistic expectation of the amount landowners can actually provide in terms of affordable housing and infrastructure contributions and plan accordingly. A more realistic base case would then provide developers with confidence that the vision is deliverable and enable the masterplan to be realised. If schemes exceed expectations then the Council could share in this surplus via a clawback mechanism in the Section 106 Agreement, without inhibiting development in the first place. Otherwise, it is likely that sites will be not taken forward and the masterplan will not be implemented.
Please note that Penn Road is within the ownership title of HSBCP (HD152573) for the exclusive use of the retail park. The Draft Development Brief suggests that this access road would be extended to open up other land ownerships, in particular the adjacent land to the east owned by Network Rail (Station Quarter West) and potentially land on the other side of the railway lines.
Whilst HSBCP are willing to contemplate the grant of this access to adjoining owners if development of their own land is feasible and takes place in a substantial form, it is inappropriate to presume that consent will be forthcoming. An understanding of the capacity will be required to determine whether the junction can sustain the level of use being proposed and the impact on the HSBCP ownership. However, it is fair to assume that this access would have significant implications on the continuation of the site as a retail park and result in a
significant diminution of value. Even if HSBCP were to allow access to other sites, to enable the wider masterplan to be realised, it must not create any capacity issues that could subsequently prevent HSBCP from fully utilising their site and the access must be recognised in any planning obligations discussions and viability assessment.
Section 3.2 of the Draft Development Brief states, "a primary school will be provided (on the HSBCP site) to support the residents of the area, comprising one form entry per 500 new residential units". The lawful planning principles of making contributions to meet the needs of a development and mitigate impacts arising from a development scheme is that the obligations may only constitute a reason for granting planning permission if they meet the tests that they are necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind. These tests are set out as statutory tests in the Community Infrastructure Levy Regulations 2010 and as
policy tests in the National Planning Policy Framework. It is not known at this stage whether every 500 residential units would all require school places related to the tenure proposed and this requirement could fail these tests.
In addition, page 11 of the Draft Development Brief shows a location to the west of St Albans Road on Bedford Street as a 'Potential School Location' although this is identified for residential development in other parts of the document and is not included in the Individual Development Sites. Another school is shown on the other side of the railway tracks on page 18 (Land Uses). Greater clarity should be provided on the location and criteria of the school and consideration should be given to appropriateness of individual sites for school use.
The HSBCP site is situated in a central urban area, in close proximity to Watford Junction Station and the core commercial area. It is likely that the number of families with children living in the development would be limited, especially as a large quantum of the accommodation is intended to be delivered for the private rented sector, which studies show, tend to appeal to young professionals rather than families.
Whilst it is understood that there is a need to provide new on-site education provision within the wider scope of the Draft Development Brief, it is not considered that the delivery of a new primary school on the HSBCP site is appropriate. It is likely to be one of the earlier phases, at which point there is unlikely to be sufficient demand from the regeneration of the SPA2 area and planning obligations cannot lawfully be used to meet the existing school demands and under provision of school places in the area.
The Development Brief should provide guidance on a contribution formula for meeting the identified school places needs of the proposed housing to provide certainty for development schemes. This would increase the chance of the earlier phases of development to actually be delivered, particularly given the overall expected infrastructure requirements.
Maximising Efficiency of Land
Section 3.2 of the Draft Development Brief states, "development should not exceed a maximum plot ratio of 2.5 (GEA/Site Area), including all undercroft and above ground parking".
This is an antiquated means of assessing or guiding the acceptable scale and form of
development. It is rarely applied in an environment where highly sustainable previously developed sites are required to optimise the development potential to maximise the efficient use of a finite resource.
The HSBCP site extends to approximately 2.52 hectares, which would equate to a maximum development of 63,000 sq. m based on this plot ratio. Page 42 of the Draft Development Brief
then states that the density of the HSBCP Site would be 246 dwellings per hectare with 622 units and 61,060 sq. m on a site area of 2.52 hectares.
The Council's 'SKYLINE Approach to Taller Buildings SPD (2016)', highlights that Watford Junction is one of the areas where taller building may be suitable. This document notes, "If sited and designed appropriately, taller buildings can bring benefits in terms of a more compact urban form based on good public transport accessibility and quality place-making".
The HSBCP site has a high existing PTAL rating as it is in very close proximity to Watford Junction station further improved linkages proposed as part of the masterplan. The actual density calculation of an acceptable development (in terms of units or habitable rooms per hectare) is a product of all the relevant design and management factors. With good quality design that broadly accords with the heights outlined on page 19 within the Draft Development Brief, we would expect a density range of 400-450 dwellings per hectare to be more
appropriate. The Council should take a design-led approach to density or adopt guidance more akin to the Greater London Authority The London Plan (March 2016 - policy 3.4 and Table 3.2) setting guidance based on the PTAL rating of the site.
Page 44 of the Draft Development Brief identifies 1,694 sq m (GEA) of active ground floor uses. Whilst we generally support the need to provide ground floor activity in certain locations, the precise level of ground floor commercial uses needs to be considered in the context of market demand and on the basis that the Station Quarter West area is proposed as the 'commercial centre' of the masterplan.
The dispersal of commercial floorspace throughout each quarter of the masterplan may not necessarily be the most appropriate approach and flexibility around market demand for commercial space outside of the commercial centre needs to be applied.
Page 42 of the Draft Development Brief states that car parking provision should range between 0.40 - 0.58 spaces per dwelling.
In such a highly sustainable public transport location as Watford Junction with its high PTAL rating the provision of car parking at a ratio of 0.40 - 0.58 is considered to be high and does not seek to promote sustainable modes of travel or reflect the likely levels of car ownership in such a development proposal. Car-free development and reduced parking ratios should be positively encouraged to limit highway impacts.
We look forward to formal acknowledgement of these representations and request that we are kept informed about further developments of the Development Brief and planning policy.