CARDIFF COUNCIL CYNGOR CAERDYDD CABINET MEETING: 29 JANUARY 2014 MAJOR PROJECT UPDATE - MULTI-PURPOSE ARENA REPORT OF DIRECTOR OF ECONOMIC DEVELOPMENT AGENDA ITEM: 6 PORTFOLIO: FINANCE & ECONOMIC DEVELOPMENT The information contained in Appendix 3 is exempt from publication for the reasons contained in paragraphs 14 and 21 of Schedule 12A to the Local Government Act 1972 Reason for this Report 1. To provide Cabinet with an update on the Multi-Purpose Arena project following the publication of a Prior Information Notice (PIN) on the Official Journal of the European Union and receipt of further market advice by industry experts The Right Solution. 2. To outline the next steps towards the delivery of the Multi-Purpose Arena project and to gain Cabinet approval to progress towards a full OJEU procurement. Background 3. The Multi-Purpose Arena project is a long standing Council priority and is widely regarded as the next major infrastructure investment required to support Cardiff’s development into one of Europe’s most ‘ liveable’ capital cities. The project involves the delivery of a circa 12,000 seat Indoor Arena, a circa 1500 seat conference auditoria, meeting rooms and circa 8000 sq m of exhibition space to enable the full range of international conferences and business events and premium entertainment and sporting events to be delivered in Cardiff. 4. The Cabinet report of 12 September 2013 provided an overview of the Council’s requirement and is attached as Appendix 1. The report also provided authority for the Council to test market interest through a Prior Information Notice (PIN) on the Official Journal of the European Union. The PIN was issued on the 11th October 2013 and the process closed on the 29th November 2013 with 45 responses received. A summary of responses is attached as Appendix 2. The key points raised are outlined in this report. Page 1 of 7 5. The Council’s specification for the combined elements of a Multi-Purpose Arena have developed over a number of years based on advice from industry experts The Right Solution (initially in 2004, and subsequently updated in 2011 and 2014). The recent update provided by The Right Solution in January 2014 is attached as Appendix 3. The Council has also engaged with designers, owners and operators of similar facilities across the UK and internationally over the last few years to understand current market trends. Market Testing 6. The feedback received through the OJEU PIN exercise closely reflects the advice received from The Right Solution as well as other market information gleaned by Council officers through engagement with the sector . The key points are as follows: • There is significant market confidence that Cardiff has the potential to be a very successful conference and arena destination. • There is significant private developer interest to deliver the project, especially if the Council is prepared to take a head lease, although proposed funding options are not limited to this approach. • All of the major arena operators are interested in the project as well as a number of international developer/operators introduced to the project through third parties. • Feedback from operators suggests Cardiff’s capital city status is a significant attribute that will help to make commercial operation more viable and attractive. The availability of adequate numbers of hotel beds in close proximity to the facilities are critical to successful long- term commercial viability. • The Council will need to make a significant contribution towards the delivery of the project, either in the form of an up-front capital contribution or through a head lease to help mitigate developer risk. However the precise level of contribution and risk is a matter for competition between interested parties that can only be confirmed through a procurement process. • Developers and operators have identified a number of potential income streams to help minimize the cost of delivering the project to the Council. The key income stream opportunities are a lease from an operator, naming rights and sponsorship income, car parking income, and potential rental income from related ancillary development. The Council has also received a number of more innovative and complex income generating ideas that would need to be tested through the procurement process. • Despite proposals for arenas and convention centres being explored in Bristol and Newport, Cardiff is seen to have a sufficiently strong basis for its own facilities based on having the benefit of an Page 2 of 7 appropriate scale local and regional population base with relatively easy access to the city-centre; a strong University presence with a large resident student population; and the significant benefit of capital city status. Issues 7. Siting : A key issue to be considered as part of the procurement process is the siting of the various components of the project. Given the limited number of large conference events hosted in the UK (with over 1500 delegates), there seems a limited case for building a conference auditorium for over 1500 delegates. Therefore, in order to attract the less frequent larger events the Council is minded to co-locate the indoor arena, convention auditoria and exhibition facilities either under one roof or as part of a Multi-Purpose Arena complex in close proximity to one another. 8. Location : There is a clear preference from developers and operators for the facilities to be located in the city-centre with ease of access to hotel beds, parking, transport nodes and other city centre infrastructure. The area of land required to accommodate the Council’s current requirement side by side or under one roof is circa 8-10 acres. Developers will also require land adjacent to the facility to enable additional value to be created to support the project. Again, a city centre locational is thought to maximize the opportunity to create value. 9. Access : Connectivity to the local and regional population, and nationally and internationally is a crucial factor in the location of a Multi-Purpose Arena. The project will also support and be supported by key transport aspirations to link the city to the region, such as the Metro project, and aspirations to link Cardiff to the world including the investment in improving Cardiff Airport. 10. Specification : The Council’s specification for each of the component parts of the project is fairly well established and remains more or less the same following the market testing exercise. It is however acknowledged that the final specification will be shaped through the procurement process as build costs and on-going operational viability will be key considerations. At present the Council’s requirement remains as follows: • Arena: 12,000 seats in a ‘U’ shaped bowl configuration • Convention auditorium: 1500 seats with flexibility to be adapted • Exhibition space: circa 8000 sq m • Banqueting hall: 1500 covers 11. Funding : The Council has allocated funding in its Capital Programme to support delivery of the project. The Council now needs to undertake a procurement process to understand exactly what facilities and finishes can be delivered with the existing allocation and to fully understand any additional costs required to deliver enhanced facilities. The inclusion of Page 3 of 7 any enhanced facilities requiring additional Council funding will require a further Cabinet/Council decision at the appropriate time. 12. Operation : There are numerous approaches to operation adopted across the UK and internationally, ranging from in-house Council provision, to public-private partnerships, and full operation by the private sector. All of the UK’s leading arena operators (as well as other international arena operators) have shown an interest in the Cardiff project. It is the Council’s preference for the facility to be managed by a private sector operator skilled at maximizing revenue generation to ensure commercial viability and sustainability. A key consideration through the procurement process will be that the Council’s contribution to the project will be limited to supporting the construction of the facility, with the day to day operation of the facility being delivered without public subsidy. Delivery 13. The Council has undertaken a land appraisal exercise and has a clear understanding of the sites in Cardiff that have the potential to deliver the project. It is the Council’s intention to secure control of its preferred site before starting the procurement process. This will ensure the procurement process is not restricted to only 2 or 3 potential bidders that have managed to secure land interests in the city, and will help to avoid a beauty contest around potential sites. Instead it is hoped the approach will maximize the potential for the largest number of potential development partners/operators to engage in the process and enable the process to concentrate on maximizing facilities and minimizing the Council’s financial exposure. Procurement Approach 14. Grant Thornton has recently been appointed to work with the Council to develop with the Council’s legal, financial, procurement and technical teams a detailed procurement strategy. Part of this work will include advice on the extent of facilities that are deliverable within the Council’s current funding envelope, the likely additional costs to the Council of delivering the full range of desired facilities, and how these costs could potentially be mitigated. This advice will form the basis of the Council’s procurement strategy. 15. Different approaches to procurement have been utilised across the UK depending on a variety of local factors. The key issue is whether to undertake a single process - Design, Build, Fund and Operate (DBFO) - to secure a development partner who would bring an operator as part of their team (or vice versa); a two stage process where the Council procures an operator first and then a development partner on a Design & Build (D&B) contract; or some hybrid approach.