The report reveals a number of former council officers involved in negotiations with developer Lend Lease for the controversial sale of the Heygate estate, who have left the council and are now full-time employees of Lend Lease Plc.
Tom Branton and Kura Perkins both worked for Southwark Council on the Elephant & Castle project for a number of years. Kura is now working as Communications Manager at Lend Lease.
Tom is now Lend Lease’s Development Manager for the Elephant & Castle project.
Lloyd Audsley worked for Southwark as Assistant Project Manager for the E&C project until September 2004 when he left the Council. In November 2004 he started work as a Planning and Production Manager for Lend Lease.
The report went on to reveal that nearly a quarter of Southwark’s councillors also work in the development industry’s PR lobbying business.
Under his list of major accomplishments he boasts “Winning approval at committee for a major development on a greenfield site in Devon.”According to Private Eye, Lend Lease numbers among Curtin & Co’s clients on a number of projects.
Current council leader Peter John who signed the E&C deal with Lend Lease in July 2010, is currently under investigation for not declaring tickets to the Olympic opening ceremony donated to him and his partner by Lend Lease. In March 2013, he was criticised for accepting an all-expenses-paid trip to Cannes paid for by Lend Lease.
Council leader Peter John with his partner Symon Lee at Olympic opening ceremony with tickets paid for by developer Lend Lease:
With the recent disclosure that the council will be making a loss on the sale of the Heygate site while Lend Lease are predicted to make a £194m profit from its purchase, questions are starting to be asked about conflicts of interest and integrity of those responsible for acting in the council’s best interest.
Southwark Council has accidentally published the details of its deal with global property giant Lend Lease for the £1.5bn regeneration of the Elephant & Castle.
A redacted version of its confidential regeneration agreement was uploaded to the council’s website as part of its compulsory purchase proceedings against remaining residents on the Heygate estate. But a classic schoolboy error has left it possible to copy and paste the blacked-out text straight out of the redacted document.
The document shockingly reveals that Southwark Council is set to receive just £50m in return for the 22 acre site (See pages 6 & 10 of the Agreement – (Heygate Headlease Premium £46m + Rodney Rd. Headlease Premium £4m). Other documents submitted by the council show that it has already spent £43.5m on decanting the estate, and is expecting to spend another £6.6m on site assembly prior to demolition (see para. 5.34). This means it will be making an overall loss on the sale 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).
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.
The £50m sale price 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.
Comparisons with other development sites at the Elephant show that the council is receiving well below market value for its land interest:
The regeneration agreement also discloses that there have been no conditions written in to avoid the practice of ‘land banking’: this is where a developer sits on an empty development site for years, which appears on its balance sheet as an asset and is used as collateral to help keep financing low for other projects. In doing so, it also profits from purchasing land when prices are low and waiting for an upturn in the market before it capitalises on its investment.
Lend Lease is a seasoned professional at negotiating with inept public authorities, and has a long list of white elephants in its portfolio:
In 2002 Lend Lease was given the Millenium Dome and 170 acres of development land at Greenwich Peninsula. There was no fee, instead the Govt would have a share in the profits. However, a similarly precarious overage agreement was written up giving Lend Lease a priority £30m slice leaving little room for overage. Needless to say the Dome was sold on for £24m in 2009; the 170 acre surrounding site still hasn’t been developed; in 2012 Lend Lease sold its stake in the scheme for £100m having built just 239 of the 10,000 new homes proposed; a report following a National Audit Office investigation shows that there is going to be little chance of any overage.
In 2002 Lend Lease completed its PFI contract for the refurbishment of the HM Treasury building, which sees it receive around £3m per month rent from the Treasury to stay in its own building.
Remaining residents on the Heygate estate have submitted their objections to the Compulsory Purchase Order ahead of the forthcoming public inquiry.
The public inquiry has been called in order for the Secretary of State to establish whether the public benefits of the development proposals sufficiently outweigh remaining residents’ rights to their homes.
On Tuesday 5th Feb the Heygate objectors are due to appear at a public inquiry into the Compulsory Purchase Order, which will take place at 10am at Southwark council headquarters - 160 Tooley Street, London Bridge.
The Heygate Leaseholders Group has issued the following statement:
We are glad to have been able to exercise our right to object and be heard at a public inquiry. However, it is a shame that tenants on the estate were not given the same opportunity: those who did object were simply evicted under the 1985 Housing Act.
Our objection is that the core public benefits of the scheme originally proposed have been dropped from the current scheme, which now resembles a purely commercial development and therefore the Compulsory Purchase Order is not valid.
We will be outlining the shortcomings of the current proposals, which include:
the replacement of 1,100 structurally-sound social housing units with 2,300 new homes of which only 71 will be social housing;
the lack of any firm guarantees that any of the 400 mature trees on site will be retained;
the lack of any renewable energy in the proposed development;
the high number of parking spaces (678) and increased provision for road traffic proposed, in what is supposed to be a car-free development;
proposals for the new development to be controlled and managed by a private company.
We will also argue that the scheme has failed to deliver its promise to Heygate residents that they would be rehoused in the new development.
Tim Tinker, the original Heygate estate architect will be speaking in support of our objection. He will be arguing against the council’s claim that the estate was a design failure. There will also be other local residents and professionals speaking in support of our objection.
We will be quoting an opinion poll which showed that despite years of underinvestment, only 29% of residents were unhappy living on the estate and a majority were in favour of its refurbishment, along with crime statistics showing that the Heygate estate’s crime rate was nearly half the borough average.
You can download a full copy of the Heygate objectors’ Statement of Case from here..
The report showed the current condition of housing stock, and estimated costs for maintenance and repairs during the following 30 years.
It found that the average maintenance and repair cost for the entire 40,000 council-owned homes in the borough was estimated at an average of £10,653 per dwelling over 14 years and £23,363 over 30 years.
Top of the list was Gatebeck House in Pytchley rd, East Dulwich, which was estimated to require £147,518 per dwelling in repairs and maintenance over 30 years. This block had subisdence and was demolished in 1999. The site has since remained empty awaiting redevelopment.
Other buildings at the top of the list requiring substantial repairs were those on the Rockingham estate, which came in at around double the average estimate.
Interestingly, the Heygate estate buildings came in way down the priority list, below average at just £21,742 per dwelling over 30 years, and the Aylesbury estate slightly above average at £23,502.
Despite the fact that Council papers show that repair works have been deferred on the Heygate since as early as 1998, this recently completed study by global consulting firm Gensler shows that the Heygate buildings are still in good condition and could be fully refurbished for just £13,955 per home.
This prompts the question as to why they are being demolished?
Southwark Council has given five different justifications for demolition:
Despite the fact that £250,000 was spent upgrading the heating system in 2007, Cllr Fiona Colley claims they are being bulldozed because the heating kept breaking down:
Along with the shopping centre it is one of “two big large structures preventing the E&C from prospering from its location.”:
The heating kept breaking down because it was neglected for 30 years; chopping down 400 of the Heygate’s trees won’t improve the environment; crime statistics show the Heygate’s crime rate was less than half the borough average; there are doubts whether the deal will provide any economic benefit to Southwark; 20,000 households have applied for social housing in Southwark – not a sign of unpopularity.
The shopping centre, as well as the Northern roundabout, the other big and large structures preventing the Elephant from prospering are now staying, only the Heygate is being demolished when it could have been maintained for another 30 years at not much more than £20,000 per dwelling (£700 per year), or refurbished for less than £15,000 per dwelling.
The way things stand it looks like Lendlease and the shopping centre owners will be the ones most prospering from the Elephant’s location!
It emerged this week that Southwark Council’s development partner and global property giant ‘Lend Lease’, is being taken to court by state authorities in Sydney over expected land 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 ‘profit-share’ or ‘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.
This doesn’t bode well for Southwark taxpayers, who have already forked out at least £38m in emptying the Heygate estate, and are about to put their hands in their pockets for a further £15m to pay for its demolition.
According to this report from the council’s Finance Director in 2007, the deal with Lend Lease involves them reimbursing £20m towards the £32m cost of buying out the leaseholders on the Heygate, £20m towards demolition costs, and a fixed payment for the land of £10m.
So the council is set to receive a total of £50m reimbursement for site assembly, once the Heygate site has been cleared and handed over to Lend Lease - [by which time the council is likely to have spent nearly twice this amount on the task]. The rest of the money the council is expecting to receive from the deal is based on a ‘profit share’ agreement, otherwise known as ‘overage’. However, it is important to understand that this 50% share of the profits comes only AFTER Lend Lease has taken a 20% ‘priority share’ of the profits and a 4% management fee.
So it remains to be seen whether there will be anything left for the council at all in 2026 when the Heygate development is due to be completed.
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)
Exactly how much Southwark council is currently expecting to recoup from the profit-share agreement at the Elephant is unclear, as it has rejected all calls to publish any financial details relating to the development.
If the expected profit share is not enough to cover the costs it has incurred in emptying the estate, and the money it will have to cough up for the tube station capacity upgrade to support the new development, then it could end up making a substantial loss on the disposal of its 24-acre primely located Heygate site.
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 Heygate represent an asset to the council worth around £100m. So, even if you were to discount the development value of the land, the council should be expecting to recoup at least £220m in overage if it is going to break even and cover its costs from this development(£70m site assembly/£100m existing use value/£50m tube station capacity upgrade).
This 2012 BNP Paribas site viability appraisal of the Heygate development estimates gross profits at £194m. However, the appraisal doesn’t include the site assembly or infrastructure costs - these are expected to be around £120m. If we include these and subtract the developer’s 20% priority slice of the profits, then the whole scheme goes into the red and is set to make a whopping £90m loss!
Suggestions have also been made that the current deal with Lend Lease is a breach of EU competition Law. In 2007 when Lend Lease won the bidding competition to redevelop the Elephant & Castle, the tendering brief included delivery of the new leisure centre and demolition of the shopping centre. Now that these are no longer included in the deal, the regeneration contract should be re-procured or else it could end up being challenged in court under the EU Treaty on State Aid.
In April 2012, Building Trust International launched the HOME competition - a project focused on providing residents most at risk in developed cities with a safe place to live. The competition’s task was to create an urban dwelling for under £20k, and it resulted in over 450 applications.
One of the applications was an entry from Gensler, a global architecture consulting firm. Gensler produced a detailed report showing how it could be possible to refurbish the Heygate estate for just £14,000 per unit - costing in total less than half of what it has already cost just to empty the estate.
At the beginning of November, we contacted Gensler who gave us permission to display one of its presentation slides on the Better Elephant website. However, last week Gensler contacted Better Elephant to request the presentation slide to be taken back down.
Being just marginally above the £13,000 grant available under the HCA Empty Homes Grants Programme, one can see why the Gensler proposals are interesting for community-led regeneration schemes like Better Elephant, and we were dissapointed to have had to remove the Gensler Heygate slides.
Gensler, were recently selected by Lend Lease to help design its new £1.3 billion commercial district on the edge of the Olympic Park in Stratford City.
The Gensler Heygate entry won an honourable mention, but the winner of the competition was architect consultancy Levitt Bernstein with its ‘pop-up’ garage proposal which would allow an 11.5sq m bedsit to be created within a disused garage for around £13,000.
With over 1,000 garages on the Heygate estate this would double the number of homes on the site without any structural modifications. We wonder if Levitt Bernstein will be putting forward this proposal in its masterplan for the forthcoming Aylesbury estate regeneration..
Better Elephant has made a formal application to the Secretary of State under the new Community Right to Reclaim Land powers. The community-led regeneration group is requesting that the Heygate estate is released from its current contractual deadlock and put back into use.
The Secretary of State can order public authorities to dispose of empty property or land. The powers are part of wider developments under the new Localism Act, which aims to shift the balance of power away from the centre to local communities.
The Community Right to Reclaim Land allows anyone to request that a specific area of publicly-owned land is put up for sale on the open market.
This can be on grounds that there are no suitable development plans in place or likely to be put in place in an acceptable period of time.
The Better Elephant Group are arguing that the current development plans for the Heygate estate are not going to be implemented in an accetable period of time [completion not due until 2026].
The group claims that this is a ‘land banking’ exercise conducted by developers, which enables them to use the land as a long-term asset to shore-up their balance sheets. According to a recent IPPR report this is common practice among the big developers, and there are currently 170,000 homes in London with planning permission that are not under construction.
The Heygate’s neighbouring Oakmayne/Tribeca development is one such example where planning permission was granted for over 500 homes due to be completed by 2009. The site is still standing empty behind a wall of decaying wooden hoarding.
The ‘land banking’ practice also enables developers to drip-feed the market: it slowly releases its flats for sale - keeping prices high and avoiding flooding the market.
The effect on surrounding communities is devastating: 170 businesses are currently on the verge of bankruptcy according to business support network ‘Business Extra’ on Walworth rd. Such practices drive out retailers and lead to long term blight of an area.
The delay is also a waste of public funds in the loss of rent and council tax incurred by the council.
It also cuts into the council’s expected returns from the regeneration partnership: because the council’s return for its land interest is based entirely on overage (profit after the developer has sold the new homes and taken a priority share), delay to the housing development erodes the financial returns, since the present value of future income is lower when received later in time compared to income received earlier, because of the time value of money and the greater risks involved.
This was also the finding of a National Audit Office report, when an investigation was launched after questions were raised about the Lend Lease Greenwich Peninsula regeneration deal in 2008.
Better Elephant’s refurbishment plans will be facilitated by a Community Land Trust, which is not profit driven and will oversee the refurbishment of the buildings to ensure a more equitable revitalisation of the Elephant & Castle without waiting another 15 years.
The Council’s original ‘Statement of Reasons’ in which it makes the case for the CPO can be downloaded here. The document makes interesting reading.
The leaseholders group are currently in the process of organising their ‘Statement of Case’ against the CPO. This will also be published online once it has been submitted.
Meanwhile the group have published their objections to the planning application for the Heygate redevelopment:
Objection to revised Heygate Outline Planning Application - 12/AP/1092
1. Affordable Housing -
Whilst the new revised housing statement does now include a minimum target of 25% affordable housing, it is not proposing the type of affordable housing required by planning policy or negotiated in the Regeneration Agreement. Both the local planning policy and the Regeneration Agreement state clearly that half of all affordable housing must be social rented. This is not the case with this application which has substituted the new ‘affordable rent’ tenure in its place. These new ‘affordable rents’ are anything but affordable and are beyond the means of most of our former neighbours here on the Heygate estate. As a result there will be insufficient social-rented homes in the new development for Southwark to be able to honour its promise to rehouse former Heygate residents in the new homes.
Furthermore, the planning application makes no provision for the retained equity homes which it was originally agreed would be offered to Heygate leaseholders like ourselves. The result is that we are being priced out of our community and that we have been asked to give up our homes on the back of promises which have not been kept. Only a limited number of former Heygate tenants will now be able to return; the exact number is unclear, but phase one of the Heygate development provides an indicator where the detailed application has now been submitted for 235 new homes, only 8 of which will be social rented.
This is an insult to the 3,500 former Heygate community who were told they would be able to return to new homes on the site. It will result in the creation of a private gated community for the wealthy, and will lead to further segregation between the capital’s ‘haves’ and ‘have nots’. This is further exacerbated by the planning application’s Estate Management Strategy, which proposes that the entire 10 hectare footprint comes under the control of a privately-managed ‘Estate Management Company’ patrolled by a private ‘Town Centre Security Team’.
2. Sustainability -
The Elephant & Castle’s existing Energy Centre used to supply heating & hot water to homes on both the Heygate and neighbouring Salisbury Row estates and a housing development on Rodney Road.
Up until January 2011, the regeneration masterplan promised to replace this with an Energy Centre which would supply up to 10,000 homes in the entire E&C area with renewable energy. This was part of the ambitious ‘zero carbon’ growth initiative endorsed by Bill Clinton.
However, this strategy now appears to have been abandoned in its entirety: the outline planning application makes no commitment to any renewable energy whatsoever. It proposes a replacement district heating network significantly smaller than the existing one, which supplies only those homes included in this planning application. It fails to make a firm commitment to supply any new homes on the first phase of the Heygate redevelopment or any other developments in the area; moreover there will be insufficient capacity to do so.
Whilst there are two energy efficient Combined Heat and Power (CHP) plants proposed within the Energy Centre they will be of relatively small capacity (1248 kW in total), and CHP will only be meet half of the total heating requirements of the new development. The other half will be met by good old-fashioned gas boilers.
Biomethane gas would make this a greener option but the supply is still in doubt. It won’t be produced on-site or off-site by Lend Lease. The gas will come from the national grid but will be paid for at a premium: a bit like green tariff electricity. Whether you will actually be able to get biomethane will depend on whether there is enough being injected into the grid. There are currently no operational biomethane plants injecting into the UK gas grid. Despite this, Lend Lease claim that there is a possibility that 15% of the gas supply could be supplied by biomethane by 2020.
It is also a surprise to learn that there is no guarantee that the new Energy Centre will be connected to the Phase 1 development. The separate Phase 1 application proposes having its own separate Energy Centre - again reliant on gas boilers with CHP providing just half of its total heating requirements. The outline planning application also optimistically lists 14 other sites including Phase 1 that could ‘possibly’ be linked at some future date. But this would only be possible by installing significant extra plant. However, questions still remain as to whether there is enough room in the Energy Centre for extra plant and who would pay for it.
The fabled ‘MUSCo’ was going to provide 10,000 homes with renewable energy. It was a pioneering scheme endorsed by Bill Clinton as a global example of ‘carbon zero’ development. The ambitious plans proposed a biomass CHP plant generating green heat and power from organic waste. It was also going to provide a bore-hole for a green water supply and an automated vacuum waste collection system moving municipal waste through underground tunnels.
Now it would appear that Lend Lease have submitted applications which barely connect one side of the estate with the other.
The planning application’s Tree Strategy is equally ambiguous and non committal. Whilst it identifies a number of trees for ‘possible retention’, the application’s small print contains the following caveat: “As many of the best of the existing mature trees will be retained where possible” subject to ‘further more detailed testing” at later design stages.
The application therefore makes no firm commitment to retain any of the 400 mature trees on the existing site.
3. Transport -
In the past two and a half years, nearly 300 people have been killed or injured on the roads in and around the Elephant & Castle. Since Christmas 2011, 4 pedestrians have died including most recently a 5 year old boy. The danger to all but most clearly to pedestrians and cyclists is endemic and long standing, owing to the domination of the area by vehicle traffic.
The original regeneration plans included proposals to tackle this problem by creating a pedestrianised ‘Civic Square’, which would span across the Northern roundabout connecting the two tube stations and creat a pedestrian precinct.
The Northern roundabout is officially the most dangerous traffic interchange for cyclists in London and cannot be crossed by pedestrians without negotiating a labyrinth of subways.
However, the final masterplan application now appears to have dropped all plans to reduce car domination: the civic square has been shelved, and it is actually proposing to reduce the size of the roundabout in order to increase the width of the vehicle traffic lanes: “Part of the overall central island removed within the vicinity of access for the electricity substation to accommodate improved circulation and better lane discipline on the internal gyratory, with amendments also along the eastern side to better accommodate the full five lanes” (Section 11: pg. 104)
In addition, - despite strong objections from City Hall - the application proposes to block TFL’s plans for a much needed eastern cycle bypass as part of the proposed Cycle Superhighway 6 (Penge to the City):
“A route for the new cycle superhighway (CS6) is not intended to be provided through the proposed Development. At the heart of the Proposed development is the provision of a new Park, a place for people to visit and enjoy as a leisure activity. The Proposed development is therefore designed to support leisure cyclists rather than being used as a cycling commuter route through the development which may discourage less confident cyclists and conflict with pedestrian movement.” (Transport Statement - 6.8.2)
Thus, not only is the application proposing to widen the E&C roundabout to provide an extra lane of vehicle traffic, it is also opposing plans for a much-needed cycle bypass avoiding a key collision blackspot.
Beyond this it is also planning to create 678 new parking spaces at the Elephant: “The Development will provide a maximum of 616 car parking spaces. A maximum of 62 car parking spaces could be provided on street.” (Transport Statement -15.1.2) This is a breach of planning policy, entirely unnecessary in a zone 1 public transport hub, and wholly incompatible with claims of delivering a car-free sustainable development.
4. Timescale -
The planning application proposes that the development will be built in phases and will not be fully completed until 2026. The original Heygate development was completed in 1974 and took just 4 years to complete. The delay is unacceptable and will lead to long-term blight affecting residents and businesses in the area. The reasons for the delay are commercial rather than technical and are based on well-established speculative ‘land banking’ practices employed by developers. The long delay allows the developer to benefit from speculative land value increases, and is also used to shore up its balance sheet with the land appearing in its accounts as an asset. This increases its credit ratings and lowers its borrowing costs on other projects.
The applicant’s track record here is an unforunate sign of what is likely to befall the Elephant if this planning application is approved:
In 2001 it signed a Regeneration Agreement for 150 acres of land at Greenwich Peninsula.
An anxious political administration is forced to make significant concessions on planning obligations in the 3 years before outline planning is finally granted in 2004.
8 years pass without any development whatsoever until Lend Lease sells the land in June 2012 to Hong Kong developer ‘Knight Dragon’. This site remains undeveloped.
In 1968, the decision was taken to demolish the original tenement buildings and owner-occupied terraced housing to make way for the Heygate estate.
The reasons given for the redevelopment were the following:
“The main problems to be overcome are the replacement of densely populated and obsolete tenement buildings which have low environmental standards, with redevelopment in a manner commensurate with today’s needs and standards.”
It has since been accepted that the victorian buildings were structurally sound and that they would be very sought after today had they been retained:
In April 2011, Southwark council acknowledged the Heygate estate buildings were structurally sound, and released the following press statement in justifying its demolition:
“Much has been learned since the designs of the 1960s. As time has passed, the estate has become increasingly expensive to maintain and heat and is no longer an ideal place for people to live compared with standards that are expected today.”