In July 2010 Southwark council signed an agreement with developer Lend Lease transferring ownership of the Heygate estate to the company on a 999 year lease. Lend Lease is the global property giant that bought the Millenium Dome for £1; it was recently fined $56m for fraud in the U.S. and has a questionable track record at the Olympic Village development.
A council blunder during the Feb 2013 Compulsory Purchase Order proceedings, revealed that Southwark Council is set to receive just £50m from Lend Lease in return for its 25 acre Heygate site (See pages 6 & 10 of the leaked agreement – (Heygate Headlease Premium £46m + Rodney Rd. Headlease Premium £4m). Other documents show that the council has already spent £65.5m on decanting the estate and progressing the redevelopment (See paragraph 50(ix) of Lend Lease’s appeal to the Information Tribunal). This means that it will be making a significant overall loss on the redevelopment of the site. The agreement does give the council a share of overage (profit left over after the developer has taken a 20% priority slice), but a report from the District Valuer shows a viability gap such that there is unlikely to be any overage(see para. 150-153 of Officer Report 12/AP/1092).
In Dec 2012, it emerged that Lend Lease is being taken to court by state authorities in Sydney over expected overage payments for its Barangaroo development.
Taxpayers were originally promised that land value and $1bn AUS dollars in public spending necessary to assemble the site, would be paid back to the state government once the project is completed. This was part of the ‘overage’ agreement signed when the plans were drawn up. However, Lend Lease is now disputing how the land should be valued once construction has been completed, and therefore how much overage is available to be shared.
These ‘profit share’ or ‘overage’ agreements are notoriously precarious, and can be subject to disputes over accounting methods as we are seeing now with Lend Lease’s Barangaroo development. They can also be compromised by delays to development, such as with Lend Lease’s Greenwich Peninsula scheme where the profit share expected from the scheme by authorities fell by £30m for each year the scheme was delayed. (National Audit Office Report – 14 July 2008)
The £50m sale price for the Heygate is astonishingly low considering that the council’s own draft CIL viability study estimated a gross development value of £990m for the Heygate site, and estimated that Lend Lease stands to make a £194m profit before any overage profit is shared.
As a rule of thumb in property development, land value is normally calculated at around a third of the Gross Development Value (GDV - in this case £990m), so the value of the Heygate land should be around £330m. Even if you discount the development value of the land, the council currently values its portfolio of 39,000 residential properties at £954.7 per square metre (GIA - Gross Internal Area). At around a total (GIA) of 100,000 square metres, the 1,200 homes on the estate have an existing use value of £100m.
Comparisons with other development sites at the Elephant show that the council is receiving well below market value for its land interest:
The neighbouring Oakmayne/Tribeca Square 1.5 acre development site exchanged hands on the open market in 2011 for £40m – just £10m below the council’s deal for its 25 acre site.
Critics of the scheme are claiming that the council’s political administration has sold the Elephant short in order to gain political advantage in honouring its manifesto pledge to deliver the regeneration after years of stalled negotiations. Others are pointing towards council leader Peter John’s cosy relationship with the global property developer.
In order to protect the public life of this area we need imagine alternatives to this type of neoliberal urban regeneration policy, which relies entirely upon debt-financed private capital and the whim of corporate property giants. We are proposing different options for the regeneration of the area, which will benefit rather than displace local people and avoid the wholesale disposal of public assets into corporate ownership.