DD1483 Barking Town Centre Housing Zone, Cambridge Road
Approval is sought for the due diligence and the entering into a loan contract of £29,195,000 with Swan New Homes, within the Barking Town Centre Housing Zone, as delegated by MD1457.
That the Executive Director for Housing and Land and the Executive Director for Resources, after consulting with the Deputy Mayor for Housing, Land and Property are satisfied that the outcome of due diligence detailed in this report is reasonable. Secondly that they give approval for GLA Land and Property Limited (GLAP) to contractually commit loan funding of £29,195,000 to the intervention specified below within the Barking Town Centre Housing Zone.
Part 1: Non-confidential facts and advice
1.1 The Barking Town Centre proposal was designated a Housing Zone by MD1457 and funding of £42.32m was indicatively allocated to that zone (subject to the outcome of legal and financial due diligence) to unlock housing and regenerate the area.
1.2 In October 2015, the GLA and the London Borough of Barking and Dagenham (LBBD) entered into an Overarching Borough Agreement to record the indicative allocation of funding for the Barking Town Centre Housing Zone. LBBD will retain oversight of delivery across the Housing Zone by implementing governance arrangements outlined in the Overarching Borough Agreement with the GLA.
1.3 Due diligence has now been undertaken in respect of the Cambridge Road loan intervention, the conclusion of which is set out below and in Part 2 of this Decision.
1.4 16-48 Cambridge Road, Barking is located in the northeast of the Barking Town Centre Housing Zone and will deliver a mixed-tenure housing development and a shell and core space to be used as a permanent home for a community enterprise. Given the site’s close proximity to Barking Rail and Underground Station, LBBD’s intention is for Cambridge Road to be a gateway development that will help to change the negative perceptions of the town centre as a place to live.
1.5 The GLA Land and Property Limited (GLAP) loan will partly fund construction costs of the development which will enable the developer, Swan New Homes Limited, to accelerate delivery of the project.
1.6 The Cambridge Road scheme will, by March 2019 deliver a high quality residential development consisting of:
• 274 homes, of which:
- 178 (65%) will be for market sale; and
- 96 (35%) will be for First Steps (shared ownership) housing
The consented scheme currently has a unit mix of 225 market sale units and 49 affordable units but Swan New Homes is in ongoing discussion with the local planning authority and GLA to convert 47 market sale units to affordable. This would result in a revised unit mix of 178 market sale and 96 affordable units. The proposed funding agreement between Swan New Homes and the GLA anticipates this change.
1.7 The Borough’s Housing Zone bid requested an interest bearing loan of £29,195,000 to contribute towards the development costs of delivering the Cambridge Road project.
Stakeholders / Contractual Arrangements
1.8 The counterparty in respect of this intervention is Swan New Homes Limited, who will enter into a Housing Zone Development Facility Agreement with GLAP. It is further proposed that GLA/GLAP enters into various additional agreements to ensure that it has adequate security in respect of this funding (as described in Part 2).
1.9 Project due diligence and an assessment of the creditworthiness of the counterparty were undertaken by Cushman and Wakefield (C&W) and GLA Group Finance. Overall, Swan New Homes’ cost and value assumptions were reported to be in line with C&W’s expectations. The creditworthiness assessment did not report any factors that would prevent GLAP funding Swan New Homes.
1.10 A report summarising the project and creditworthiness assessment was considered by the GLA’s Interest Rate Setting Board on 9 November 2015. Guided by the methodology in the European Commission’s communication in relation to setting interest rates and in accordance with State Aid rules, including consideration of Swan New Homes’ credit rating and the security being offered, the Interest Rate Setting Board determined the interest rate to be offered to Swan New Homes. This offer has been made on the basis that it is equivalent to a market rate and is subject to contract. The rate is detailed in Part 2.
1.11 Swan New Homes submitted a planning application for the Cambridge Road scheme in September 2015 and secured outline planning consent in December 2015. Full planning consent is expected to be achieved by end of March 2016. The scheme is due to start on site in April 2016 or, if later, the date on which all pre-commencement conditions have been satisfied and Swan New Homes has control of the site to enable works to commence. The scheme is due to complete by March 2019.
1.12 GLAP will contract with Swan New Homes and this relationship will be managed through quarterly meetings in order to ensure transparency. The relationship will be managed by a designated officer from the GLA’s Housing and Land Directorate with oversight from the Housing and Land Senior Management Team.
1.13 Without the GLA loan of £29,195,000, the Cambridge Road scheme will not produce a high enough residual land value for Swan New Homes to wish to proceed with the development in the short-term and, therefore, will not progress to the project milestones outlined in section 1.11. Without this investment, the scheme could be delayed by up to two years while alternative funding is sought.
2.1 The project will deliver a mixed use development comprising 274 residential units and a ground floor shell and core space of 485 sqm for community use by March 2019.
3.1 Barking Town Centre Housing Zone is aimed at implementing the Mayor’s policies set out in the Mayor’s London Housing Strategy. In January 2014, the GLA published an Integrated Impact Assessment (IIA), including an equalities impact assessment, of that strategy. The policies related to increasing housing supply, to which the Cambridge Road scheme will contribute, were covered by the IIA for the Further Alterations to the London Plan.
3.2 The IIA concluded that updating housing projections and targets would support the delivery of sufficient housing and may help to stabilise housing prices, supporting equal opportunities throughout communities. Furthermore, the provision of housing, including maximising the delivery of affordable housing would be in line with other policies of the Plan (e.g. Policy 3.5), ensuring that the needs of different groups are taken into account in the housing design.
3.3 The delivery of new and additional homes will help to implement Objectives 1, 2, 3 and 4 of the Mayor’s Equalities Framework “Equal Life Chances for All” (June 2014) through the creation of new homes, housing products and well-designed housing schemes.
3.4 The designation of a Housing Zone within an area is designed to identify a site or sites as an area for housing growth and delivery within London, often partnered with a series of funding streams and non-financial assistance to deliver these new homes, and therefore this decision will facilitate these goals and ultimately ensure that the needs of different groups are taken into account in the design and development of housing.
3.5 In order to access this funding, Swan New Homes will be required to enter in to contract with GLAP to deliver the intervention. With regard to project delivery, the contract places the following obligations on Swan New Homes in respect of the Equality Act 2010:
• Swan New Homes shall comply in all material respects with all relevant legislation, including but not limited to legislation relating to health and safety, welfare at work and equality and diversity, and will use reasonable endeavours to enforce the terms of the Scheme Project Documents to ensure compliance with this obligation.
• Swan New Homes has, and is in full compliance with, a policy covering equal opportunities designed to ensure that unfair discrimination on the grounds of colour, race, creed, nationality or any other unjustifiable basis directly or indirectly in relation to the Works is avoided at all times and will provide a copy of that policy and evidence of the actual implementation of that policy upon request by GLAP.
a) key risks, issues and mitigation of these
4.1 The site is adjacent to a railway line and as such the developer will be required to seek Network Rail approval of its proposal, which could delay the delivery programme. The GLA will seek to mitigate this risk by ensuring that the contract contains an absolute longstop date for practical completion of the development, which is unrelated to the timing of Network Rail Consent.
4.2 A proportion of the land intended to form part of the development is currently in LBBD’s ownership. A Sale and Purchase Contract has been agreed between Swan New Homes and LBBD in regard to transfer of the latter’s land and it will be a condition to the drawdown of any GLAP funding that a copy of the completed sale and purchase contract between LBBD and Swan New Homes has been provided to GLAP evidencing acquisition of the land.
4.3 The proposed development comprises a high concentration of homes for private sale which in the event of a market downturn could impact on project viability and delay repayment of the loan. In addition delivery of a higher proportion of affordable units than is required by the current planning consent would reduce the level of private sales income from which GLA’s loan is to be repaid. This risk will be mitigated by ensuring contractual arrangements are adequately robust to secure GLAP’s interest.
4.4 The GLA has carried out ‘know your customer’ checks to verify the party with which it is contracting under this proposed transaction. Swan New Homes is a wholly owned subsidiary of Swan Housing Association. Swan Housing Association is the registered group parent and is regulated by the Social Housing Regulator, the Homes and Communities Agency, under registration code L4145. Swan New Homes was set up in 2004 to develop new-build housing for outright sale on behalf of the group.
4.5 The group currently owns and manages over 10,000 properties in East London and Essex. The development activities of Swan New Homes are overseen by the group’s parent, Swan Housing Association. Swan Housing Association has held the status of GLA Investment Partner since April 2012.
4.6 The GLA has engaged with the parties to this proposed intervention, as it has considered appropriate. It is not considered necessary or appropriate to consult any other persons or bodies including those specified in section 32(1) of the Greater London Authority Act 1999 for the purposes of this Director Decision.
b) links to Mayoral strategies and priorities
4.7 The purpose of the Housing Zones Programme is to increase housing supply by accelerating and unlocking development to deliver 50,000 homes by 2025. The Cambridge Road project will contribute towards this and support the aim to deliver 42,000 homes per annum prescribed by the Further Alterations to the London Plan March 2015.
5.1 This loan would be drawn down from the Housing Zone programme funding which is part of a £200m loan from DCLG. £25m is currently allocated to a loan in the London Borough of Redbridge, therefore the £29.195m will be drawn down from the remaining £175m.
5.2 The appointed property consultants Cushman and Wakefield have reviewed the proposal and consider the assumptions to be reasonable.
5.3 This project is capital in nature, therefore suitable for this loan.
5.4 This loan will be used to update the overall risk profile of the investments made across the Housing Zones programme.
5.5 Further comments are included in reserved Part 2.
6.1 Under section 30(1) of the GLA Act 1999, the GLA has the power to provide the loan funding for the intervention explained above, on the basis that to do so will further one or more of the GLA’s principal purposes. In exercising the power in section 30(1), the Mayor must have regard to the matters set out in section 30(4-6A) of the GLA Act. Those matters have been taken into account as considered appropriate by the GLA in respect of these Housing Zones (see MD1457) and, in respect of this intervention, as detailed in this report.
6.2 The provision of the proposed loan on market terms is likely to constitute a specified activity, as defined under section 34A of the GLA Act and the Greater London Authority (Specified Activities) Order 2013/973. Accordingly, it will need to be provided by a subsidiary company of the GLA, as is proposed. GLA Land and Property Limited (GLAP) is a subsidiary of the GLA.
6.3 Further legal comments are set out in Part 2.
Completion of Contracts
Physical Start on site
Practical Completion of development