Valuation of the Nicholson's Centre
To consider the above titled item.
Russell O’Keefe, Executive Director – Place, said that members had requested this item on the Nicolson’s Shopping Centre valuation was added to the agenda. RBWM owned approximately 50% of the freehold on the centre site. In 1985 RBWM let a 150 year lease on its freehold, because of the terms of that lease in addition to the poor performance of shopping centres over the last few years the ground rent the Council had received on that lease had been very poor including as low as zero in recent years. In regards to the lease over the Council’s part of the freehold and the freehold on the rest of the site (the other approximately 50%) that had changed hands a number of times. In February 2019, Tikehau Capital in partnership with Areli Real Estate purchased the lease that the Council originally let in 1985 and the other half of the freehold that the Council does not own from the receivers of the previous owners. The lease that was originally let includes the ability for the person who holds the lease to redevelop the site without approval being unreasonably withheld by the freeholder (the Council on its part of the site). That ability to not unreasonably withhold approval is as the Council as a freeholder, that does not affect its ability as a planning authority. The Council also owned a building called Central House, which was a vacant 1970s office building, the Council bought back the leasehold in 2017 for approximately £2.5 million. This was done to facilitate the redevelopment of the car park and regeneration of the surrounding area.
Following negotiations with Tikehau Capital and Areli Real Estate and the relevant approvals the Council entered into a conditional sale agreement with their company called Denhead for the sale of its freehold interest in the shopping centre site, (the part they didn’t own as they already had a long lease over the Council’s freehold and the other half of the freehold), and also Central House. That was for a combined fee of £6 million (£1 million for the Council’s part of the freehold for the shopping centre and £5 million for Central House). Those negotiations and that decision were informed by an independent valuation, a section 123 report, carried out by Lambert Smith Hampton. That was to ensure the Council got best consideration for its interests.
A valuation was carried out by another set of surveyors, called Knight Frank, which was referenced in the planning information submitted by Denhead, the company owned by Tikehau and Areli, as part of the financial viability assessment. That valuation was an existing use valuation that covered the shopping centre as a going concern, the whole site including the lease the Council let in 1985 as well as the freehold they had already bought from the receivers. In regards to the Council’s interests they were valued by the section 123 report by Lambert Smith Hampton which values the Council’s interest not the rest of the site and interests. From what the Council had seen of the Knight Frank valuation it was in line with the Lambert Smith Hampton valuation. The two valuations were valuing different elements, one was valuing the whole site as a going concern, the valuation by Knight Frank, whereas the Council’s valuation carried out by Lambert Smith Hampton was just valuing the Council’s interest in the site.
A member of the public had requested to speak on the item. Mr Hill noted that the valuation document was not included as part of the report for the meeting and asked if all members were given the valuation document at the time, along with the final contract that was entered into. He also noted that the original valuation on the freehold was 0.75m to £1 million, but in the Council report it expressed a value of £1-2m so therefore asked if Lambert Smith Hampton revised their valuation. The life span of Central House was originally listed as ‘at least 50 years’, but the report referred to 40 years. The decision was not on the Cabinet Forward Plan as a key decision. Mr Hill asked whether the different valuations raised the prospect of state aid issues. He asked about Denhead Sarl which were not referred to in the public report and whether it could have increased risks. Valuations had been requested on the current site and future development potential, as this was when the site became very valuable. However, the valuator did not include the potential valuation in their report and so how could the Council be sure that they had not triggered state aid limits. He went on to say the rental income on the lease the Council received was around £200-300k per year.
Russell O’Keefe said that the Council’s ground rent that it received under that long lease was based on a percentage of the overall income generated by the centre and it had not been at the figures Mr Hills was referencing for quite a number of years, with all payments being well under £100,000 a year for some years due to terms the Council entered into in 1985 and the poor performance of the centre. The section 123 report set out a very poor outlook for this for the future. The existing use valuation was carried out by Denhead, RBWM got a market valuation which looked at existing use and development potential, a section 123 report. As the Council got a section 123 report to ensure it got best consideration for its interest there could be no issue with state aid as it was a market value. The report went to Full Council and all members got a copy of the section 123 report, it was one of the appendices to the report which informed the decision, along with a copy of the head of terms which informed the future contract RBWM entered into. The building life span of Central House was 40-50 years.
Mr Hill further asked for clarification on whether LSH asked the Council to change the valuation from less than £1 million to between £1-2 million. He was informed that they did not, the section 123 report was with the report with the full methodology.
Councillor L Jones asked if a market valuation considered development potential, and if the contract would be made public, with confidential elements redacted, once signed.
Russell O’Keefe confirmed a market valuation considered existing use and development potential. Regarding the contract, if the conditional contract was completed and became unconditional then some of that information would be able to be published but some of the information would remain Part II.
Councillor Werner asked what alternative strategies were looked at for the site, with RBWM having ownership of Central House, and could therefore have been given more control over the future of the site.
Russell O’Keefe said that alternative strategies were considered, for example there could have been a joint venture which RBWM would have been involved in but this would have likely involved the Council putting significant amounts of money at risk. The conditional land sale agreement meant that the Council was not exposed to significant risk as a result.
Councillor L Jones asked if RBWM took the offer with best value in mind as people were looking for reassurance.
Russell O’Keefe confirmed that the Council decision was taken on the basis of a section 123 report, which was an independent valuation to demonstrate the Council achieved best consideration, in line with the legal requirements for property and land sales.