At the 15 July 2020 Cabinet Meeting a paper was presented on the proposed Becketwell Performance Venue. Rachel North ( Director Communities and Place) explained that it resulted from an unsolicited approach from the private sector, that it was “private investment”, and that it was “de-risking delivery”.
When detailed questions were asked by opposition Cllrs, the Leader, Cllr Poulter pointed out that it was still “early doors” on the project and was subject to a full business case assessment. However without any knowledge of the specification – other than it would “look like the Hull Bonus Arena” – the cost was to be fixed at £45.8m.
The “selling point” in the paper was:
“As stated above the forward funding agreement means that the Developer (SJS) will take 100% of the construction risk and benefit from any savings they can secure in delivering the arena.”
This statement is misleading and implies that the Council’s position is risk free. In fact the Council’s position is very risky – an angle which has never been subjected to public scrutiny.
The Leader, Cllr Poulter, committed in July 2020, to publish the Council’s business case for full public review and examination – this has not happened.
The Council has been very protective of the details of this arrangement, providing the minimum of information publicly, and refusing to publish the signed Forward Funding Agreement under Freedom of Information ( or as required by the Transparency Regulations).
Why would a “private investor” commit to a fixed price in July 2020 with little knowledge of the building specification and potentially risking its own fragile financial position?
Or were the public and Cllrs misled?
Who is the “Private investor”?
The July 2020 Cabinet presentation implied that a new entertainment company had brought forward an opportunity to invest in Derby – inspiring “confidence” in the City,
The company is St James Securities (SJS) who:
- In March 2018 were nominated as the preferred bidder for the Debenhams site (Site 1)
- In August 2019 submitted a planning application for the £200m Regeneration of the whole Becketwell site – including the plot proposed for the Performance Venue
- In October 2019 bought the land proposed for the Performance Venue, and Car park, from Derby City Council for £400k which, according to SJS’s accounts had a market value of £3.2m. The Council had bought the land just 12 months earlier from Clowes Developments. SJS also bought Site 6 ( 13-14 Victoria Street) for £275k
- In July 2020 SJS signed a £1.8m deal, Forward Funded by Derby City Council, to develop Site 7 ( land owned by the Council)
Following the cancellation of the Assembly Rooms Refurbishment scheme in early 2020, SJS clearly saw an opportunity to make profitable use of Site 4.
Who is St James Securities?
In their own words:
“We are an award winning, Leeds based commercial property development company operating across the North of England”….”We have an excellent track record of working on difficult and sensitive projects”
It was formed in the mid-90’s and for much of the next 20 years was part of the Joint Venture – CTP St James. It is during this period that it delivered the projects that it continues to publicise as part of its “track record”. The JV split in 2011.
Oliver Quarmby (Director of SJS) said, following the split :
“It’s a polarised market at the moment. We are looking at a different sort of development to the past. The food store retail sector is where there is growth at the moment. There are wonderful opportunities out there.”
By 2013 SJS was technically “bankrupt” with net liabilities of £8.7m. The following year it was subject to a management buy out which removed the liabilities from the balance sheet.
Since the JV split, SJS has delivered just 3 projects in 11 years:
2014 – M&S Simply Food ( Harrogate) and Morrison’s ( Ilkeston)
2018 – St James Retail Park (Sheffield).
In March 2015, Paul Morris ( Director -SJS) said:
“… following this deal (sale of Morrison’s in Ilkeston) and the successful development of a new 32,450 sq ft M&S Simply Food at Leeds Road in Harrogate, we are delighted to report that St James Securities are active and open for business.”
Since 2017/18 SJS has focussed solely on the Becketwell Regeneration project
The Group’s Net assets are £1.76m. The Directors acknowledge that “uncertainties do exist”
In all practical terms, SJS is now 100% committed and dependent on Derby City Council for its financial future.
Is St James Securities taking “100% of the Construction Risk”?
In short – no!
A traditional development model ( Forward Purchasing Agreement) would mean that SJS (the Developer) would buy the land, construct the building for a given budget, fund the whole project and secure a buyer/operator. That would be 100% construction risk.
In this Forward Funding Agreement:
- Derby City Council is funding the construction on a “pay as you go” basis – so there is no cash flow/financing risk for SJS
- All of SJS’s initial costs incurred prior to contract signature will be refunded by Derby City Council ( Confirmed in SJS’s 2020 financial statements)
- The buyer ( DCC) has already been identified.
- The price paid to SJS is fixed at £45.8m.
The final point has been described by the Council as the key construction risk which is solely the responsibility of SJS, however:
- The specification is not clear – it’s “like the Hull Bonus Arena”. There is plenty of opportunity for de-scoping to enable SJS to make more profit or to argue a specification change and claim a cost increase from the £45.8m.
- If the cost exceeds the fixed £45.8m by more than 5% (£2m) SJS does not have the financial backing to cover this loss. Derby City Council then has no option but to fund the completion of the project and therefore pay the excess above £45.8m.
- The purchase of the Padley Centre, and associated costs ( £0.5m – £1m), which is essential to the delivery of the project will be paid by DCC and is in addition to the £45.8m.
Multiple land transfers and Council’s demolition “obligation”
In October 2019 Derby City Council owned all of the land for the Becketwell Regeneration Scheme apart from one section owned by W.Ford and Sons. The area shaded blue ( site of the Performance Venue, and a future multi-storey car park) was bought by DCC from Clowes Development on 22 November 2018.
On 30 October 2019, DCC sold the blue shaded area to St James Securities for £400,000.
As part of the Forward Funding Agreement ( disclosed in the published Contract Notice) a section of this plot ( area surrounded by dashed line) is to be sold back to DCC for £561,495. This excluded the Pennine Hotel and Branigans (in the lower half) which remains the ownership of SJS. Despite this the July 2020 Cabinet paper states that the demolition of the Pennine Hotel “..is already a Council obligation”. This will be the site of a new Multi-Storey Car Park which is not part of the Performance Venue scheme.
A contract was awarded to A R Demolition for £1.648m by Derby City Council for the demolition of the Pennine Hotel; this was described as Phase 1. The tender referred to a Phase 2 being Laurie House/ car park etc which was awarded to Cawarden – no public record of the contract value although it is reasonable to assume that it would be around £1-2m.
It is not clear why there is a “Council obligation” to demolish properties on non-Council land. One can only conclude that it was a condition of the sale.
The Becketwell Performance Venue will be a much needed boost for the City Centre.
The Council, like all Local Authorities is mandated under the Local Government Transparency Code 2015 to publish details of all major contracts. Commercial confidentiality is not a default reason for non-disclosure albeit that seems to be the case for Derby City Council. The Forward Funding Agreement states:
“This agreement and its terms shall be confidential to the parties both before and after the Payment Date.”
“Neither party shall make or permit any announcement or publication to be made concerning this agreement or its terms either in whole or in part or any comment or statement relating to this agreement”Extract from Forward Funding Agreement published under FOI 533156386
Both parties contracted to total secrecy. The public are entitled to ask why?
In summary, we know:
- The building cost is fixed at £45.239m based on a loose specification
- The land is being sold back to DCC for £561,495, being around 50% of the land originally sold by DCC to SJS 9 months earlier, for £400,000.
- DCC is funding the entire project on a “Pay as you Go” basis. SJS are not investing money in this project, long term. All SJS’s initial costs are being refunded by DCC.
- DCC’s borrowing costs are £1.449m pa ( indicative rate 2.72%)
- The annual rent payable by ASM Global, the operator, is “around” £0.5m pa – an annual return of 1.1%. This questions the book value of the venue upon completion. ( The Council may have to substantially write-down the value of the building)
- If SJS go bust before the building is complete then DCC will own an unfinished venue and will have to pay for completion.
- If the cost overrun is more than ~£2m (5%) there is no evidence to suggest that SJS can withstand such a loss given that their net assets were just £1.7m at 30/9/21.
- SJS has no experience in developing a Performance Venue – its strategy has been on retail units. The “track record” is dated (pre-2011) and has delivered little in the last 10 years.
The Operator contract is equally secret. The questions which should be answered are:
- Will DCC share in any of the venue revenues to supplement the low rental cost?
- The Derby Arena (Pride Park) will lose it’s non-sports events e.g. pantomime. What impact will that have on the Council’s budget?
The non-disclosure of the full details of the commercial contracts is nothing to do with confidentiality. The Government’s Transparency Code 2015 is clear
“The Government has not seen any evidence that publishing details about contracts entered into by local authorities would prejudice procurement exercises or the interests of commercial organisations, or breach commercial confidentiality unless specific confidentiality clauses are included in contracts. Local authorities should expect to publish details of contracts newly entered into – commercial confidentiality should not, in itself, be a reason for local authorities to not follow the provisions of this Code. Therefore, local authorities should consider inserting clauses in new contracts allowing for the disclosure of data in compliance with this Code”
The Council chose not to be transparent by inserting a confidentiality clause. There is nothing inherently confidential about this arrangement that would prejudice SJS’s future commercial opportunities.
The reality is that the whole arrangement is an appalling deal for the Council and it bears no comparison with the narrative presented in the Cabinet meetings and on which decisions have been made ; the Forward Funding Agreement, Business Case and Operator Agreement would not stand up to public scrutiny. This is the reason for non-disclosure.
The evidence suggests that this will be a High Risk project for the Council and could be a significant drain on its finances.
I doubt that the Conservative Councillors who made the decision to proceed with this venture had any notion about the overall financial risks or had the experience and competence to ask the right challenging questions.
This raises many questions around the Council’s commitment to full transparency over the use of public money and the integrity and quality of local democracy!