MD1251 Disposal, in part, of Beam Reach 8.C

Type of decision: 
Mayoral decision
Code: 
MD1251
Date signed: 
29 August 2013
Decision by: 
Boris Johnson MP (past staff), Mayor of London

Executive summary

This Mayoral Decision is for the disposal, in part, of Beam Reach 8, located in Rainham, LB Havering, to H. Smith Food Group plc. (H Smith), a food distribution company.

H Smith has offered a headline figure of £650,000 per acre, exclusive of VAT, for the freehold of 1.36 acres of the site. This sale is also subject to deductions for abnormal construction costs, as set out in the part 2 confidential paper. Further costs for road construction repayment to Easter Developments, and disposal costs, that will provide a net receipt, are also defined within the part 2 paper.

The Mayor is also asked to endorse the apportioned repayment for the previous road construction as undertaken by the estate developer (Easter Developments).  
 

Decision

That the Mayor:

1.    Approves the sale of part of Beam Reach 8.C, plot 2. (ref 03/012/002) to H. Smith for a headline figure of £650,000 per acres, exclusive of VAT, together with the expenditure of associated professional fees,  resulting in a net receipt as set out in the part 2 confidential paper; 

2.    Delegates authority to finalise the terms of the sale to the Deputy Mayor for Housing, Land and Property and the Executive Director for Housing & Land; and

3.    Approves the apportioned repayment mechanism for the previous road construction. 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    In April 2012, the GLA inherited large tracts of land in London Riverside from the London Development Agency (LDA). The LDA had spent the previous decade assembling land at Beam Reach 8, CEME/Beam Reach 6, and at Beam Reach 5, in order to support industrial activity through the development of small, medium and large units, respectively. 

1.2    Easter Developments (Rainham) entered into a long-term leasehold agreement in February 2010 to develop 23 small units (242,000 sq ft in total) upon the Beam Reach 8 (BR8) site. These were constructed and sold/let within the next two years. As part of this development, it was necessary for Easter Developments to remediate the site and construct an access road, in accordance with a planning permission gained by the LDA in 2005, later renewed in 2009. 

1.3    Following the Easter Development, the LDA entered into two further disposals to MJF and Wincanton, at the southern boundary of BR8 – see aerial photograph at Appendix A. This now leaves 7 hectares for the GLA to dispose of at BR8.
 

Planning

1.4    BR8 comprises four distinct strategic industrial, brownfield development sites, located between Coldharbour Lane, Ferry Lane and the River Thames in Rainham, Essex. In total this incorporates 12.4 hectares of developable land and is within the London Riverside Opportunity Area. 

1.5    On 30th October 2005, Havering Council granted permission for an outline application for the BR8 business park for 100,000 sqm of B1b, B1c, B2 and B8 industrial and warehousing uses. The GLA supported the scheme. This original outline planning permission was renewed on 19th January 2009, via an application to vary existing conditions from the 2005 permission, and further renewed on 4th April 2013, again via condition variation, but owing to the partially implemented nature of the original permission.  
 

 

Objectives and expected outcomes

H. Smith offer

2.1    H. Smith Food Group plc is a food distribution company, employing 16 staff located presently in Dagenham. The company has been served notice to vacate from their existing landlord, and wishes to expand its business whilst remaining within the M25, and as such has approached the GLA, in conjunction with Marick, a development management firm, to purchase land at BR8. All 16 jobs will be safeguarded.

2.2    H. Smith wishes to purchase 1.36 acres (0.55 hectares), as shaded in yellow upon the plan at Appendix B, for a headline figure of £650,000 per acre. This parcel represents part of plot 2, site reference 03/012/002. CBRE has provided a valuation assessment, and this figure is in line with current market value in their opinion. However, an allowance has been made for additional costs (abnormals) as outlined in the part 2 paper. 

Conditions

2.3    The H. Smith offer is subject to the following conditions:

•    Subject to Mayoral approval.
•    Subject to planning, however as the outline permission was extended on 4th April 2013 as detailed above, this permission will be a reserved matters application, and therefore a much reduced risk. 
•    H Smith Plc will enter into a Development Agreement with Marick Management Ltd to deliver a bespoke cold store extending to 23,825 sq. ft. [This Development Agreement will be entered into simultaneously with the sale/purchase Agreement, therefore isn’t strictly a condition of purchase]. 
•    Exchange to take place within 4 weeks of receipt of full legal documents with completion upon practical completion of the building. 

Abnormals

2.4    Although the site has undergone extensive works to remove contaminated material and remediation in order to undertake any development, the site will require further works which will incur additional costs, including external levelling, extra over cost for piling, extra over costs for suspended slabs, and raising of the site’s level:

i.    Piling

The ground conditions on this site are very poor, with made ground, peat and soft clays extending down to approximately 8m below existing ground level. As such the only viable foundation solution is piling.

ii.    Suspended slabs

The ground conditions also require fully suspended floor slabs to be supported on these piles. 

iii.    Building level

There is ground contamination on this site with heavy metals and low levels of radioactivity. The existing reports covering the complete area recommend a covering of clean inert fill over the existing ground. 

The site is at risk of fluvial flooding from the River Thames. Finished floor levels for new development need to be set at 1.5m AOD. 

The requirement to provide cover over the contaminated ground together with the minimum flood level raises the slab level artificially above existing ground levels, with the need to import large quantities of fill material. 

2.5    The above factors have been assessed internally, as well as externally by Bradbrook Consulting, and CBRE. It is felt that a deduction as set out in part 2 of this paper, from the headline purchase figure, is commensurate.

Access Road

2.6    In February 2010, the LDA entered into a long-leasehold with Easter Developments relating to the development of industrial units upon BR8. 

2.7    BR8 required a new estate road to be built to provide access to the highway at Ferry Lane. The estate road would serve both the plot of land being developed and the LDA’s retained land, which together comprise Phase 8C of the business park. Since the LDA did not have the resource to construct the estate road and did not want to own or maintain an unadoptable estate road, it was agreed that the developer would carry out the construction and take a lease of the land on which it was sited. The LDA was paid a premium sum for the land on which the estate road was to be built.

2.8    Since the estate road would, in due course, serve the LDA’s retained land, it was agreed that Easter would be reimbursed both the land cost and the construction cost on a pro-rata basis as-and-when the retained land was itself developed and sold.

2.9    The land cost element of this equation was agreed at the time of the sale and is set out in the agreement as a gross sum of £81,543. The construction cost was to be assessed upon practical completion of the works, based on the actual cost of construction. The resultant total sum is then repaid by dividing that sum by 31,237 square metres (i.e. the total area of phase 8C) and multiplying by the area of subsequent development plots as they come forward for development. 

2.10    The land has now transferred to GLA Land & Property Ltd (“GLAP”) under the GLA/LDA transfer scheme. Easter has completed the works and wishes to agree the construction cost element so that it can be recorded formally. There is some urgency, as Easter has passed into administration and wishes to tidy-up its affairs.

2.11    A worked example, containing defined and agreed sums, is contained within part 2 of this paper. 

Other considerations

Risk

Reputational Risk 

3.1    The Beam Reach 8 site was purchased by the public sector to support small scale industrial units and business growth. H. Smith is now offering market value for the site in order to further these aspirations. There is therefore little risk associated with this proposal.

Financial Risk

3.2    There is no financial risk to GLAP as the site is being sold for market value and any risk associated with construction borne by H. Smith. 

Delivery Risk

3.3    As GLAP’s involvement within the scheme is solely to dispose of the site to H. Smith, the risks to GLAP are negligible, with overall project risks resting firmly with H. Smith and their development partners, Marick. 

 

Financial comments

4.1    There is currently no capital budget to meet any costs of disposal of Beam Reach 8 in the approved capital spending plan.

4.2    The proposed sale is a part disposal of Plot 2 Beam Reach reference 0003/012/002 currently valued as at 31st March at £3.088m covering an area of 5.31 acres.

4.3    Based on land area of 1.36 acres the proposed disposal site can be apportioned a value as at 31st march 2013 of £700,900. The difference between this and the net receipt of £583,000 does not exceed 30% and so does not conflict with the general consent for best consideration. 

4.4    The desktop valuation carried out at 31st March 2013 would have made no allowance for abnormals, so the apportioned valuation aligns with gross offer. Based upon this and CBRE’s advice, this is considered to offer the best value reasonably attainable for the site. 
 

Investment and Performance Board

6.1    HIG recommended the sale of the Beam Reach 8.C site to H. Smith Group, as set out above, on 23rd May 2013.

Housing Investment Group

6.1    HIG recommended the sale of the Beam Reach 8.C site to H. Smith Group, as set out above, on 23rd May 2013.

Appendices and supporting papers

Appendix 1: Aerial photograph of BR8
Appendix 2: BR8 site plan