Commercial Rd 767-785 , Viability Report, 1016
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Guy Ziser Wild Orchid Property Ltd 9 Hampstead West 224 Iverson Road London NW6 2HL 24 October 2016 FOI Exemption Section 41/43(2) Private & Confidential Dear Mr Ziser 767-785 COMMERCIAL ROAD, LONDON, E14 7HG VIABILITY ASSESSMENT 1. INTRODUCTION Pre-application advice from the Council dated 6 January 2016 noted on page 3 that “the proposal as it stands has attracted objections from the council’s housing team due to the proposal not offering any accommodation which would qualify as affordable housing and the potential loss of opportunity to develop the site for affordable housing.” A Viability Assessment has therefore been produced to demonstrate the affordable housing contribution if any that the scheme is able to provide viably, as sought by the Council’s ‘Managing Development Document, Development Plan Document’ (April 2013), page 28, paragraph 3.6. The application site is located on the Commercial Road, bounded by the Limehouse Cut canal to the rear. There are 4 parts to the site, which are summarised as follows: • Corner Site : 767 Commercial Road is an existing tyre and exhaust centre with associated vehicular parking. • West Site : 769-775 Commercial Road, a vacant triangular area of cleared land on the western part of the site, with timber hoarding. • Central Site : 777-783 Commercial Road is occupied by a two storey Grade II listed Victorian warehouse with basement. The warehouse was originally built in 1869 for sail making and chandling before being used for the engineering and manufacture of steam pumps from 1889 to the late 1990s, since when it has been vacant. [Type text] • East site : 785 Commercial Road is a more recently constructed building which has been vacant since the 1990s. A number of uses surround the site, including residential, retail/commercial premises with residential and offices above. The Grade I listed St Anne’s Church lies directly to the south across Commercial Road. Limehouse Town Hall (Grade II listed) is adjacent to the Church. Limehouse and Westferry rail and DLR stations are relatively close to the site, whilst a number of buses run along Commercial Road. Accordingly, the site has a PTAL rating of 6. The site will be redeveloped as follows: • Corner Site : demolition of the existing buildings, then the construction of a 5-6 storey building plus basement to provide Class B1(a) offices at ground and basement levels, 9 Class 3 residential flats above and a public arts feature to the west of the building. Whilst the 9 flats are likely to be rented, at this stage they are assumed to be sold on the open market. • West Site : construction of a 3-5 storey building plus basement to provide ‘sui generis’ co-living accommodation for young professionals with 72 rented bedspaces along with associated reception, laundry facilities, communal lounges, kitchen/dining rooms, workspaces and manager’s accommodation. • Central Site : retention, careful restoration and conversion of the Sailmaker’s warehouse buildings into Class B1(a) offices with associated reception, toilets, storage, cafe and meeting rooms. • East Site : demolition of the existing building behind retained ground and first floor facades, the installation of a second floor facade and the construction of a 3-4 storey building with basement to accommodate ‘sui generis’ co-living accommodation with 64 rented bedspaces, along with reception, laundry facilities, communal lounges, kitchen/dining rooms and manager’s accommodation. A Viability Assessment is set out in the following Section to justify the affordable housing contribution if any that can be provided as part of a viable scheme. 2. SCHEME VIABILITY This Viability Assessment is provided on a strictly confidential basis. The inputs and outputs of the financial appraisal are for use only by the London Borough of Tower Hamlets in the evaluation of this Viability Assessment. The inputs and outputs should not be revealed to any third parties. 2 DOUGLAS BIRT CONSULTING FOI Exemption Section 41/43(2) Private & Confidential Company number 8140132 Registered at Companies House, England The applicant considers that the information enclosed and other matters relating to completed and ongoing projects to be exempt from disclosure under the exemptions to the Freedom of Information Act 2000 set out in section 41 (information provided in confidence) and section 43 (2) (information provided in confidence). The Viability Assessment uses a financial appraisal that has been accepted by the GLA, HCA and London boroughs over the past 10 years or more when considering viability in relation to planning contributions and grant funding. Each key input to the financial appraisal is covered in turn in the following sub- sections. The financial appraisal is attached to this letter as Appendix 1 . 2.1 Benchmark Value The scheme has been appraised in 2 parts, as follows: • 767 Commercial Road (the Corner Site), which was acquired for £1.8m earlier in 2016. Details of the purchase price are attached as Appendix 2 . • 769-785 Commercial Road (covering the East, West and Corner sites). A Valuation Report for the site in its existing use is attached as Appendix 3 . The Market Value with no hope value has been identified as £8.6m. At this stage, no hope value has been added to this figure, even though it is accepted by viability in planning guidance (e.g. the GLA Development Appraisal Toolkit Guidance Notes (2015), Section A3.2). However, I understand you reserve the right to include hope value at a later date, as required. When stamp duty and fees are added to the above figures, a Benchmark Value of £10.866m has been included in the appended financial appraisal. 2.2 Construction Costs The build cost of £27.36m for the scheme reflects the Detailed Elemental Cost Analysis produced by CHPK which was produced in September 2016 and attached as Appendix 4. A detailed Specification of Works for the completion of the proposed scheme can also be provided on request. There are complications in terms of completing the scheme given the site’s location next to the Limehouse Cut canal, which have been incorporated within the Cost Analysis. In addition, the scheme will bring back into productive use the currently vacant and dilapidated Grade II listed Sailmaker’s buildings (Central Site), with all the complications and risks arising from that. 3 DOUGLAS BIRT CONSULTING FOI Exemption Section 41/43(2) Private & Confidential Company number 8140132 Registered at Companies House, England The scheme is assumed to take 24 months to complete, including site set-up and a period to let and sell the new flats, co-living accommodation and commercial spaces, with an interest rate of 6.75%. In reality it is likely to take longer to fully let the scheme. 2.3 Planning Obligations £205,550 to cover Council CIL, Mayoral CIL, Section 106 and monitoring fees has been included on this worksheet, as estimated by the planning consultants for the scheme. 2.4 Fees Professional fees of 10% on build cost and 3% sales and marketing fees are shown on this worksheet. 2.5 Rented Units 136 units will be let to young professionals as co-living accommodation in flats that will have single bedspaces and shared kitchen/dining rooms. There will also be communal lounges, laundry facilities and workspaces available for all residents. The mix will be as follows: Single Units Accessible Units Totals • East Site 56 8 64 • West Site 64 8 72 Totals 120 16 136 In addition, there will be a manager’s flat in each of the East and West Sites. The assumed rents for the single/accessible units and the manager’s flats are as follows: • Single/accessible units £1,375 per calendar month • Manager’s flats £2,000 per calendar month Colliers has provided advice on the rent levels of the above units in its letter of 21 September 2016 which is attached as Appendix 5. Annual rental growth is assumed to be 3.5% per annum. Management and maintenance costs of 20% and voids/bad debts of 2.5% per annum reflect conservative estimates of the running costs of the scheme over time. Applying a discount rate of 6.75% per annum over 30 years, the net capitalised value of the rented units is £30.944m. 4 DOUGLAS BIRT CONSULTING FOI Exemption Section 41/43(2) Private & Confidential Company number 8140132 Registered at Companies House, England 2.6 For Sale Units There are 9 flats above the offices in the Corner Site. Whilst the likelihood is that these flats will also be rented, for the purposes of this exercise they are assumed to be sold. Colliers (Appendix 5) has estimated that these units would sell for an average value of £665 per sqft. I have made the same assumption on this worksheet. This produces a gross development value (GDV) of £5.454m for the sale of the 9 flats. 2.7 Ground Rents Net capitalised ground rents totalling £81,818 have been included for the 9 flats, based on the following calculation: • £500 per unit per annum x 9 flats @ 5.5% yield including 5.75% purchaser’s costs 2.8 Commercial Units Colliers has estimated a rent of £33 per sqft, with an 18 month rent-free period and a yield of 6% (Appendix 5). I have applied the same assumptions as above, although my yield is 5% less 5.75% purchaser’s costs. The GDV of the commercial (office spaces) that will be located in the Corner and Central Sites is therefore £12.492m. 2.9 Cashflow The Cashflow shows the revenues and costs relating to the scheme, as described in the preceding paragraphs over the assumed 24 month programme. Scheme profit of 8.3% on GDV is well below the threshold level of 20% on GDV which was applied in the externally produced ‘Community Infrastructure Levy: Viability Study’ (2013) (e.g.