States of Jersey Review of Waterfront Enterprise Board.

States of Jersey

Review of Waterfront Enterprise Board

Final Report May 2010

Contents

1. Terms of Reference and Approach   3
2. Executive Summary   5
3. Factual Base  10
4. WEB Performance Review  15
5. Financial Review and Contract Commitments   36
6. WEB Organisation and Staffing   39
7. Activities Review   42
8. Review of Current Assets and Retention Policy  45
9. Asset Transfer Protocols  48
10. Risk Management Regime and Project Risk Plans  50
11. Capacity of WEB to Purchase Private Assets  55

Appendices

1 Terms of Reference  56 2 Asset and Project Schedule  61 3 Map 3-92 for Waterfront Development Area  63 4 Land Transfer plan  64 5 Projects Timeline  65 6 Asset Transfer Protocols  67 7 Draft Risk Management Policy Standard  69

1. Terms of Reference and Approach

In the light of referred proposition (P79/2009) to establish the States of Jersey Development Company (SoJDC) the Chief Executive of the States of Jersey (SoJ) has instructed DTZ to carry out an independent external review of the Waterfront Enterprise Board (WEB). The full Terms of Reference for this review are enclosed in Appendix 1 but cover:

1. A review and evaluation of the past and current performance of the Waterfront Enterprise Board in the promotion and delivery of regeneration projects in the St Helier Waterfront area, including:

• what WEB has delivered;
• the benefits delivered to the States of Jersey as a result;
• the current financial structure of WEB, and its contract commitments.

2. A review of the structure and levels of staffing within WEB and advice to the Minister on how this compares with comparable development companies.
3. A review of the current activities of the Waterfront Enterprise Board in respect of regeneration master planning, development promotion, project specification, project implementation and exploitation; and advice to the Chief Minister on which activities are appropriate to the proposed operation of the SoJDC and where those activities not thought to be appropriate should be undertaken.
4. A review of the current assets held by WEB, their tenure and value, income generation and holding costs and advice to the Chief Minister as to which assets should be retained in SoJDC, which should transfer to the Public and the timing of such transfers.
5. Development of established clear protocols for the transfer of assets between Jersey Property Holdings (JPH) and the Company.
6. Development of a detailed risk management regime that includes individual project Risk Management Plans.
7. A review of the capacity of the SoJDC to purchase privately-owned assets and advice on the protocols required to ensure the most effective vehicle is used to effect such purchases.

Our review has involved the following activities:

• A review of various papers provided including:

• States Propositions relating to the creation of WEB and its subsequent development activities
• WEB's annual accounts and business plans
• Asset lists and control files relating to WEB projects

• A visual inspection of the main completed developments and public realm projects
• Interviews with:

• The Board of WEB , Managing Director and Director of Finance & Development
• Chief Executive of SOJ.
• Treasurer of the States and Head of Decision Support
• Chief Executive of Planning and Environment and Director of Planning
• Deputy Chief Executive of SOJ and Director of Jersey Property Holdings
• Minister for Treasury and Resources

• Desktop research into the activities and resources of other UK regeneration agencies

2. Executive Summary

1. The public perception of WEB is that it has not performed well in the delivery of its mandate, that the Waterfront lacks a coherent vision, the delivery of completed developments has been too slow, and many buildings poorly designed.
2. Overall however, the conclusion of our review is that in the light of considerable constraints WEB has performed better than this perception allows. In the 15 years of its incorporation WEB has contended with:

• Confusion at the outset over its role in the planning process
• A development area physically separated from the town centre by the Route de la Liberation
• The limited pool of developers in Jersey capable of addressing major regeneration schemes
• The Le Pas dispute over ownership of the Waterfront foreshore and the entire West of Albert reclamation site
• Inappropriate intervention in some of its operational and commercial dealings by the States Assembly and a political process which produces slow decisions
• A higher degree of public interest than comparable bodies on the mainland
• A lack of continuity in leadership and management
• Prior to 2005, more limited staffing resources than similar bodies on the UK mainland

3. Against this background, WEB has successfully delivered:

• Infrastructure and public realm development funded out of its share capital and housing at Victoria and Albert Pier, and offices at Maritime House funded by loans and capital grants from the States of Jersey
• Via land sales and third party development agreements , a public swimming pool (funded by SoJ Capital Grant) and leisure complex, four star hotel, new transportation centre, retail, aparthotel and offices at Liberty Wharf and 426 residential units with commercial space at Harbour Reach and Castle Quay on the Waterfront

4. Although WEB has not at any time paid a financial dividend to the States it now holds total assets with an estimated open market value of £88.6m against a net transfer in value of £20.2m in 2004, a value uplift delivered substantially through the negotiation of valuable planning consents and development agreements.
5. 2007 estimates from Price Waterhouse Coopers (PWC) are that the indirect socio economic benefits to the States in form of new employment could range from £49- £65m once the whole of the West of Albert area has been developed out.

6. We have also considered WEB's performance in terms of the design quality of what it has delivered, how it has engaged with the community and stakeholders, its approach to procurement and commercial dealings, and its management of the estate. Our key conclusions are:

• There are pockets of good design amongst the public realm projects, but no overall sense of a continuous or compelling environment or instances of exemplary building design. Responsibility for this in the earlier years lay with weak planning policy but partly with WEB who failed to champion or give sufficient weight to design considerations. Design has since risen higher up the Island's policy agenda, reflecting the trend in UK urban policy and design shortcomings should be viewed in this context. It should also be recognised that WEB are now at the forefront of the design agenda with the development of detailed design codes for the Esplanade Quarter.
• WEB has engaged regularly with the public over development plans for the Waterfront. But on occasion it appears to have allowed developers to take too much of the lead role in public consultation and perhaps approached public engagement more as a means to inform than to genuinely seek views. The lack of a structured public relations programme has served to reinforce negative perceptions of WEB with the public, although it is clear that WEB has faced some criticism in the past where it has sought to undertake a protracted and coordinated communication campaign.
• It has generally interacted well with the States at officer level but there was evident tension between WEB and the Planning Committee in its early years due the lack of clarity around their respective roles at the inception of WEB which hindered progress with some developments.
• WEB appears to have operated a level playing field with developers and employed due process in the evaluation of their proposals. It has done as much as could be expected to maintain competitive tension in the face of considerable delays that have often been beyond its control. WEB has on the whole shown itself to be commercially astute in its dealings with developers and achieved an appropriate balance between land value and overage payments within development agreements. Recently it has shown a firm hand and acted decisively with Harcourt in terminating its Heads of Terms agreement for the Esplanade to safeguard the States interests.
• Clearly some mistakes have been made, notably in the drafting of the exclusivity agreement signed with the developer for Les Jardins, which enabled it to be assigned subsequently to Harcourt without retendering or renegotiation.
• Our sense is that whilst WEB have marketed the individual development opportunities outside of Jersey, more could also have done more to promote the wider Waterfront opportunity to an international audience.

• Overall WEB has managed to maintain some control of the whole development area but there are unresolved issues around unfulfilled land transfers and the adoption of areas of public realm which inhibit a clear exit strategy.

7. Financial Review and contract commitments

1. WEB has a straightforward corporate structure with a limited number of wholly owned subsidiaries established to facilitate land sales to developers without attracting stamp duty.
2. WEB's cash resources position it to move forward with its aspirations to develop out the Westwater site and the first phase of the Zephyrus scheme, which recently received planning consent. The £71m (market value) of land assets it holds could also provide the security for future borrowing required to fund the cash flow requirement for the Esplanade Quarter
3. The majority of contracts to which WEB is party including the two extant development agreements for Castle Quay and Liberty Wharf, various leases and service contracts confer nearly all of their obligations on the counter party. WEB's only notable

 commitments are to sell the Phase 2 land at Castle Quay to Dandara once Phase

 1 is complete, and by way of a States Proposition, to contribute towards a

 community centre above the Waterfront car park. None of this carries any risk that should be of concern to the States.

8. WEB Organisation and Staffing

1. Our view, supported by those we interviewed within and outside WEB and by a desktop review of two similar regeneration bodies, is that WEB has a very lean organisational structure and until 2005 was understaffed for carrying out its remit. We have been unable to benchmark its cost base meaningfully against other bodies but note that WEB have made efforts to manage down operating costs and conducts independent pay scale reviews.
2. WEB have identified a limited increase in resourcing requirements in the short term but as SoJDC grows into its development role, its staffing structure and resourcing strategy will require regular review to deal with peaks and troughs in workload, and to strike the appropriate balance between employed and contracted staff, and external consultants.

9. Activities Review

1. We refer to the detailed schedule set out in section 7 of the report which provides a high level assessment of where various development and regeneration related activities should take place under the proposed changes from WEB ( as the regeneration agency for the Waterfront) to States of Jersey Development Company ( as an island wide development delivery vehicle.)
2. The allocation of activities described is wholly consistent with the key terms of the P.79 for the creation of SoJDC, which above all distinguishes between the Master Planning role of the Minister of Planning and Environment, and the development delivery role of SoJDC.

10. Asset Retention and Transfer Policy

1. There is a general perception that WEB is holding on unnecessarily to a number of assets which should be either sold or returned to public ownership. WEB accepts the principle that assets should only be retained in their ownership where it is necessary to retain control over a defined development area in order to meet its obligations to support marketing and sales campaigns for ongoing developments until completion of sales or letting - and that in some cases this could require fairly long term retention.
2. In practice, however, that it has been difficult for WEB to transfer assets back to the States for a variety of reasons. Foremost amongst these are the legacy funding arrangements which require WEB to retain a number of income producing assets in order to meet their operating costs. The States of Jersey have been reluctant to accept a transfer of infrastructure assets back from WEB without an endowment to cover long term management and maintenance costs.
3. Whilst WEB can demonstrate that they have been managing these assets very effectively, ideally this complicated and illogical series of arrangements should be rationalised as part of the transfer to SoJDC, to allow the new body to focus exclusively on its core remit. We have identified in Section 8 what we believe would be the most appropriate destination for each asset in the future and an indication of timing where a sale or transfer back into public ownership is recommended.

11. Asset Transfer Protocols – From Jersey Property Holdings to SoJDC

2.11.1 It is apparent that the protocols for land transfers to WEB have changed over its life and been inconsistently implemented. In the course of producing our report there has been extensive engagement between JPH and WEB to agree a clearer set of protocols. These are in summary that:

• For land or buildings outside designated Regeneration Zones, transfers from JPH to SoJDC should be at market value, assessed by an independent valuer

• For land or buildings within designated Regeneration Zones, independent valuations should be obtained on both an open market basis ( taking into account any existing planning permissions), and on a residual basis that takes into account its position within a wider Masterplan area and the particular asset's share of the costs of delivering public realm and infrastructure improvements to that area
• A political decision can then be made as to whether to transfer the asset at lower than market value, in order to progress the regeneration scheme
• Privately owned land may be acquired, either by private treaty or through compulsory purchase by the States, with SoJDC meeting the transaction costs upon transfer
• New public realm and infrastructure should ordinarily be transferred to the respective Parish, with costs of future management met by increases in Parish rates that are generated from the new development
• If agreement cannot be reached with the Parishes, it can be transferred back to JPH at a nominal sum but with an appropriate revenue stream to cover future costs

These protocols establish an effective platform for the development of more detailed set of transfer arrangements to apply to specific schemes and assets in the future.

12. Risk and Control Mechanisms

1. We have reviewed the risk management principles set out in the States Proposition for the creation of SoJDC and the accompanying Memorandum of Understanding, development industry best practice and existing WEB practices
2. We have noted the recent development of a formal risk assessment and risk management plan by WEB which codifies a number of existing good practices. We have supplemented this with a draft risk management policy standard and a consolidated risk management approach for the future operation of SoJDC.
3. Effective risk management will be underpinned by strong oversight and governance arrangements. We believe this will be more effectively delivered through the change in accountability for SoJDC to the Treasury and Resources Minister, and by the appointment to the Board of a Chairman and non Executive Directors with substantial industry experience who provide effective challenge to the Executive and take decisions on the management of the company.

3. Factual Base

We have based our review on key factual information provided by the States and WEB. Much of this is summarised in the schedule in Appendix 2 which sets out details on WEB's assets, the projects delivered over a 15 year period, the status of its undeveloped land holdings, and headline information on procurement methods.

1. Incorporation of WEB and Inputs

1. The establishment of the Waterfront Enterprise Board was approved by the States on 12th December 1995 for an initial 10 year period. Proposition P156/1995 and its

Memorandum and Articles of Association established the objectives of the WEB as follows:

"(a) To promote, co-ordinate and implement a comprehensive strategy for the development of the St. Helier Waterfront area as shown on Map No: 3-92 ( see Appendix 3) approved by the States on 10th November, 1992 (the "Waterfront").

(b) To exercise administrative control over the use of the land and the adjacent shore and water areas in the Waterfront and to liaise and consult with all relevant committees of the States of Jersey and other governmental and regulatory authorities in relation to investment in infrastructure projects in and development of the Waterfront."

2. Various earlier Propositions we have reviewed set out in more detail the role and objectives of WEB, inter alia:

• Uniting the Waterfront with the town
• Establishing high standards of design
• Meeting local and visitor needs, port operational and leisure needs
• Acting as a gateway to Jersey
• Creating an attractive environment for people to live work and play
• Communicating with local residents and business communities on the development of the Waterfront
• Acting as a one stop service for all private and public sector interests

3. WEB was finally incorporated on 21st February 1996 as a fully owned subsidiary of the States of Jersey and for two years following its formation WEB essentially functioned as a committee responsible for administering land assets. In 1997 via proposition P40/1997 its authorised share capital was increased from £1m to £20m for the provision of various public realm and infrastructure projects including the road network, promenades, parks, landscaping, car parks, steam clock and gardens, and servicing. Most of these assets remain in public ownership although WEB owns the car park and road network.

4. In 2002 it was deemed that in order for WEB to act effectively as an interface between the States and the private sector in the development of the Waterfront, in should have an interest in the land and via Proposition P45/2002 various plots were transferred from the public by way of a freehold or long 150 year leases at a peppercorn.
5. WEB has in practice drawn down such elements of the demised land by way of individual sales or leases as and when required to facilitate specific commercial developments. The total area of land agreed to be transferred to WEB amounts to approximately 1.5m sq ft of which 1.25m sq ft has actually been transferred. The remaining 0.25m sq ft has been developed by WEB and effectively returned to the States in the form of public realm. The sequence of these transfers and current status of land ownerships is summarised in the plan in the Appendix 4.
6. The value of the land holdings transferred to WEB was assessed at £33m in two valuations carried out by CWHB in 2004.The ultimate transfer value to WEB netted off the costs of site infrastructure that had been funded out of WEB's share capital. The net transfer value was £20.2m.

2. Outputs - What has WEB Delivered?

1. Physical Infrastructure and New Buildings

In 15 years since its creation WEB has delivered:

Via direct development:

• Public realm and infrastructure including the Steam Clock and gardens, Les Jardins de la Mer and La Fregate, the Waterfront car park and the road network and promenades around the Waterfront and the Waterfront services infrastructure. ( all funded from share capital)
• £26m of first time buyer private and social housing at Albert Pier ( funded via SoJ grant)
• Offices for Jersey Harbours, Customs and Immigration at Maritime House (funded via SoJ grant)
• The Weighbridge ( funded from land receipt)
• Other elements of social and public provision including a skateboard park, boat hoist and quay at La Collette and the regeneration of the Havre de Pas bathing pool. ( funded from WEB resources)

Via land sales and development agreements with third parties:

• a cinema and leisure complex, including public swimming pool ( funded by SoJ grant)
• four star hotel

• 426 residential units and commercial space along the Waterfront ( including Harbour Reach and Castle Quay, currently under construction)
• a new transportation centre, offices, aparthotel and retail at Liberty Wharf.

2. Financial Benefits

1. No dividend has been paid by WEB to the States as its sole shareholder at any time in the last 15 years as profits have been carried forward from year to year to fund WEB operations.
2. As at 31st December 2009 WEB holds on its balance sheet net assets totalling £39.05m including current investment assets (development land assets) with a book value of £21.86m. These land assets include the Esplanade Quarter, Westwater, Castle Quay Phase 2 and Zephyrus sites which accounting policies require to be carried in the books at the opening market value at the date of acquisition plus subsequent expenditure incurred.
3. However, the open market value of these assets based on third party valuations as at the same date totals £71m. The Esplanade Quarter and the Zephyrus development land together account for c. £60m of this market value, based on planning consent, being secured for substantial residential and commercial developments. The Zephyrus site has recently secured a planning consent for 58 residential units and ground floor commercial space and the Minister for Planning and Environment has indicated that he is minded to approve the Esplanade planning application subject to a number of conditions.
4. As a measure of WEB's financial performance we have compared the current market value with the 2004 transfer in market values for these assets which was £33m. So even accounting for general upward market movement in the last five years, WEB has contributed through their activities to an uplift in asset values of well in excess of £44m.

Summary

5. We have reviewed WEB's 2010 business plan which projects a cumulative cash surplus of £83.2m by 2018 from WEB's development activities in the West of Albert area, based on phased land sales of £82m over the period. If realised, this would enable WEB to pay considerable annual dividends to the States in the future.

3. Social Benefits

1. The public have had the benefit for some years of all of the infrastructure and public realm development delivered by WEB. The merits of these developments are commented on in more detail in the following sections, but it was clear from our inspections and discussions that the Weighbridge Square in particular is a well used public space and focal point for community events, and has acted as a catalyst for al fresco dining in the surrounding hotels and restaurants. Also, the investment in the road network around the Waterfront has opened up the area for future development.
2. At various stages WEB have commissioned reports from Price Waterhouse Coopers on the wider economic impacts and benefits of development proposals along the Waterfront. These are forward projections of the overall net economic benefit derived from net employment additions, taking into account leakage (benefits derived out with the States from the initial development), displacement (income that would have been delivered elsewhere without new development) and multiplier effects (downstream benefits to rest of the economy).
3. The most recent of these reports in 2007 projects total net economic benefits of between £49-£65m from the development of the West of Albert area, based on various Masterplan scenarios developed with Hopkins. Whilst this includes benefits derived from completed schemes, e.g. the hotel, the majority pertains to the development of the Esplanade Quarter and is as yet unrealised.

4. Our recommendation is that in future SOJDC should raise the profile of these indirect benefits in the reporting of its performance and results to ensure they are fully understood and appreciated by stakeholders and the public.

4. WEB Performance Review

1. Context

1. The timeline in Appendix 5 maps the key events in WEB's corporate history, the development of Masterplanning for the Waterfront Development Area and the delivery of development. These project timelines are approximate but convey a sense of the pace at which development has progressed over the last 15 years and provide a context for our review. The timeline also shows the UK property market cycle over the same period. We understand that broadly speaking, the shape of the Jersey market cycle tends to track that in mainland UK, albeit with a 9 to 15 month lag and that it not experienced significant periods of falling residential values over a 25 year period. Property yields are similar to those in the UK, although have perhaps performed slightly better during the downturn of the last two years
2. Various issues and "Jersey" factors have been offered up during consultation both as relevant context and partial mitigation in our assessment of WEB's performance.

The Role of WEB

3. Whilst WEB's objectives are set out in P156/1995 and its Memorandum & Articles of Association there was a strong consensus from our interviews that there was confusion from the very outset about the nature of WEB's remit. In the words of the Chief Executive of the States, they were handed "words and a map".
4. So far as we can ascertain there was no official launch of WEB with the public and this may have contributed to misconceptions amongst both States Members and the public as to its role and purpose. And from the subsequent involvement of States Members in the activities of WEB it would often appear to have been treated more as a Department of the States than an arm's length body.
5. The principal area of confusion was over responsibility for the Masterplanning of the Waterfront Development Area. There was insufficient clarity in the Proposition on the distinction between the setting of planning policy and responsibility for wider area Masterplanning and the result was that soon after its creation, WEB moved to develop and consult publicly on its own Masterplan for the Waterfront Development Area.
6. There appear to be two reasons why this happened. The 1992 Andrew Downie Masterplan in which the mix and massing of land uses across significant areas of the Development area were not allocated, created a planning vacuum which WEB was obliged to fill in order to fulfil its mandate. And the lack of clarity in the Proposition led WEB to interpret its role in terms of those UK regeneration agencies such as the London Docklands Development Corporation which had explicit planning powers conferred on them. The effect was to create tension between WEB and the Planning and Environment Committee in the early years.

The Jersey Property Market

7. The lack of developer competition in Jersey has been a consistent feature in the development of the Waterfront. Major U K based developers have tended to avoid Jersey because of the limited scale of development opportunities, and construction costs that are 25-30% higher than the mainland because of labour regulations and the need to import materials via the UK. There are also high establishment costs and it takes 5 years or more to gain a foothold in the market
8. There is a locally based pool of four or five commercial and mixed use developers capable of delivering projects of £5 to £7m. For larger developments there is only one main player who has secured a dominant market position over the last ten years and now controls most of the major development land opportunities in private ownership.
9. The size of the market and scale of developments means that the majority of investor interest is from Jersey based private individuals seeking lot sizes of up to c £10m. Larger investments are owned by UK or European Institutions but recent changes to tax law mean that exempt UK and European pension funds can only invest in transactions large enough to absorb the high transaction structuring costs.

The Starting Position

10. WEB inherited a Development Area physically separated from the town centre by the Route de la Liberation. This has been a fundamental constraint to meeting the aspirations set by the States for a properly integrated development.

Le Pas Dispute

11. Early developments took place against the background of the Le Pas dispute over ownership of a major area of the Waterfront foreshore which included the entire West Of Albert reclamation area. This ran from 1995 through to 2003 when it was settled out of court through the transfer to Le Pas of land now occupied by part of the Castle Quay development.

The Political Process

12. The political process in Jersey has evidently allowed for regular challenge and review by States Members of Propositions and for a high level of member interest and involvement in WEB's operational and commercial dealings. We have been provided with various examples of this by WEB:

• Rescindment Propositions e.g.

• P112/1999 to rescind the decision to build the Waterfront Hotel.
• P156/1999 to rescind the leisure complex lease.

• P134/2000 to rescind the leisure complex length of lease decision of 150 years and change to 99 years.

• Propositions relating to WEB's role e.g.

• March 2003 Proposition for the dissolution of WEB
• July 2005 Proposition to amend the renewal of WEB's 10 year working limit to 2 years.

• The requirement to submit full development agreement documentation to the States Assembly for approval – slowing up the commercial process at its most sensitive stage
• Micro-level involvement by States members - WEB have cited the example of members commenting in detail on the design of door fittings for the Waterfront hotel.
• The significant burden imposed on WEB's management in responding to States Members information requests and numerous written and oral questions asked in the States Assembly

13. This has been coupled with a far higher degree of press scrutiny and intensity of public interest in WEB than would be experienced by comparable bodies on the mainland.

Continuity

14. The timeline illustrates that over a 15 year period, WEB has had seven different Chairmen (including Jurat John Tibbo's two periods of acting chairmanship) and three different Chief Executives. There have also been a number of different Heads of the Planning Committee and Ministers for Planning and Environment over the same period.
15. We have been provided with the specific example of where a change of control in the States Planning authority in 2006 led to the appointment of Hopkins and a change of approach to the Masterplanning for Esplanade Square. It would be reasonable to assume that WEB's overall performance would have benefited at certain points in time from a more stable leadership picture and consistent approach to Masterplanning.

Development Outcomes

2. Design

1. One of the key benefits of creating WEB as a single body responsible for coordinating the development of the Waterfront ought to have been the strong leadership, control and consistency that such a body could exert across the overall design and identity of the Waterfront.
2. In reviewing the design outcomes achieved to date, we have therefore considered:

• The types of benefits that ought to have accrued at the Waterfront had good design been pursued
• The extent to which good design ought to have been embedded in WEB's policies and operations having regard to the development of best practice over the last 15 years
• The actual design outcomes delivered during WEB's tenure to date

3. The benefits of good design as an important part of successful development and regeneration are now widely recognised. Controlling design is central to good town planning; it is widely accepted as creating and sustaining occupier demand and investment value; and it helps create distinctive places that can contribute to wider social and economic policy objectives. As a flagship development district the Waterfront had the potential, in part through excellent design, to create a "ripple" effect beyond its boundaries by improving the wider image of St Helier as a business, residential and tourism location. The design of individual buildings is clearly important in this process but so too is the need for a coherent and high quality public realm, communal landscaping, amenity and infrastructure.
4. In the context of the Waterfront, the main benefits that good design ought to have influenced can be expressed as follows:

5. Whilst recognising that Jersey is its own jurisdiction, we think it is relevant to consider how over the last two decades in the UK, design has progressively moved up the agenda of urban policy makers and those delivering development and regeneration. Based on our discussions and consultations with WEB directors, planning officers and others we have concluded that the rise of design as an embedded principle of good development followed a similar pattern of gestation in Jersey as the mainland.
6. There have been numerous policy statements, guidance and initiatives concerning design over the life of WEB. Key UK milestones are plotted overleaf, against which we have identified the progression of development parcels at the Waterfront.

WEB  1995

established

February 1997  Planning Policy Guidance 1: General Policies and Les  Principles

Jardins  Established the background context to the planning

framework including important principle of design as a policy tool

June 1999  Urban task Force issues its report: Towards an Urban Waterfront  Renaissance

Car Park  Seminal paper which guided urban policy for a decade

July 2000  English Partnerships and Housing Corporation (now Maritime  HCA) launch the Design Compendium

House  Reinforcing key principles of urban design

November  Urban White Paper published

2000  Key policy document setting out importance of design and

consultation in urban planning and delivery

February 2001  CABE: The Value of Urban Design published

Promotes how excellent design adds economic, social and environmental value

Waterfront  September  Breaking Down the Barriers

Leisure  2002  Results from workshops exploring best practice in urban

regeneration

Mid 2000's  Prince's Foundation champion the use of Enquiry by

Design

A key planning tool intended to bring together key stakeholders

V&A Pier  February 2003  Sustainable Communities Plan - Building for the Housing  Future

Sets out a programme of action for delivering sustainable communities

November  CABE: The use of urban design codes

Harbour  2003  How urban design codes can help property values, reduce Reach  crime etc

Waterfront  September  Urban Design Compendium 2

Hotel  2007  Update of Homes and Communities Agency tool

7. We have reviewed the various Propositions concerning the establishment of WEB and found relatively consistent reference to high quality design as one of WEB's key objectives and clearly therefore, the projects that have been delivered to date have taken place against the ascendancy of design being recognised as an important feature of town planning and development.
8. Against that background, we have measured the specific design outcomes of WEB according to the following criteria (adapted from HCA's Design Compendium):

9. It should be recognised that design has risen up the policy agenda over the last two decades and it has been stated several times in our consultations with WEB, the Chief Executive of the States and the Planning Department that design was not given sufficient weight as a policy imperative until the appointment of Senator Freddie Cohen as the Minister for Planning and the Environment.
10. But as design featured in its terms of reference at the outset we believe the WEB Board should have progressively driven the design agenda, not least because the commercial value of good design should have been sufficiently clear. As master developer WEB should have had a clearer strategy to champion design throughout the development and beyond. This is not to say that design has been overlooked completely and consistently. A design competition was held for the Albert Pier Housing and was the subject of public consultation. The leisure complex was designed by Faulkner Brown, one of the UK's leading architectural practices. But overall, the outcomes have been very mixed.
11. It is acknowledged that design is now embedded in the Planning Department's policies and, for example, that CABE carried out a review of the remaining development plots in 2005 leading to the adoption of the Waterfront SPG and the establishing of the Waterfront Design Group in 2008.

12. In addition WEB have highlighted that from 2007 strict and comprehensive design coding was introduced for all developments, ranging from public realm to internal fittings. A design code was commissioned by WEBfor the Esplanade Quarter which now forms the basis for future developments at Westwater and Zephyrus.

Conclusions and Implications

13. It is evident from our discussion and consultations that design has now been established as an important role for WEB and that it is now an important feature of planning policy in Jersey. It is also clear that in the early phases of development – arguably the most critical in setting the public perception and establishing market appetite – design was not given sufficient weight. It seems that this is in part because of the terms of reference that WEB was given, in part that WEB did not give sufficiently weight to design as an evaluation criteria to select development partners, and in part because it was not given sufficient emphasis through planning policy.
14. On the basis that design is now recognised as important, we would expect that WEB, or its successor, would in the future be responsible for:

• Managing the design process properly and in a structured manner so that WEB champions the design agenda
• Ensuring that individual plot developers have a high quality multi-professional team and a design procurement process that is well defined so that each phase contributes to a coherent long term vision
• In partnership with the Planning Department, securing the commitment from across all stakeholders (including the community) to a quality design led approach.

15. In addition to a stronger emphasis from WEB, it is also important that the Planning Department continues to "own" the design agenda by having clear policy objectives and adopted design codes which should be mandatory for flagship projects such as the Waterfront.

3. Community Engagement

1. Effective community engagement is a fundamental aspect of new development and regeneration. It empowers local people to become involved in decisions affecting their community, it builds consensus, improves perceptions and can help to debunk myths. We therefore consider it appropriate to assess WEB's community engagement policies and performance as part of this review.
2. As an assessment framework we have measured WEB's performance against the guiding principles adopted by the Homes and Communities Agency, the UK's national housing and regeneration agency. Whilst we are adopting this as today's benchmark, it does need to be recognised that – like design – the "art" of community engagement as a process has developed in the UK and Jersey over the life of WEB.

3. The assessment we have carried out points to the following performance:

Use different models and techniques of  WEB has highlighted to us the production of community engagement, ensure  newsletters that were distributed to all agreements and strategies are  households through the JEP and Jersey Post. implemented, measure success, assess  This ceased in the face of criticism that it was impact  wasting public funds.

Latterly it is clear that engagement has been run effectively and that representations have reflected in changes to the proposals. There is little evidence of this in the earlier years.

Conclusions and Implications

4. It is clear that community engagement has taken place at various intervals but in some cases was not effectively controlled by WEB and some questions have been raised by States officers as to the style of consultation WEB adopted. There is a compelling logic to assume that a lack of a structured approach to community engagement as part of an overall public relations programme may have led to public misconception of WEB as being another Department of the States.
5. Going forward, we recommend that WEB or its successor should build on the momentum of the most recent consultation as part of a structured programme.

4. WEB's Approach to Procurement

1. The disposal of interests in land by WEB need to be subject to strict governance as it is a company wholly owned by the States and is effectively administering the land on behalf of the States. As such, we have identified below the principles that we consider should have informed WEB's procurement strategy against which we have provided our analysis of the actual performance.

Establish a transparent selection  Again, on the basis of the control files that we have read we process with clear evaluation  consider that a transparent selection process was followed with criteria. Criteria for selection  clear evaluation criteria. The Esplanade Quarter file for

could of course vary depending  example includes similar evaluation criteria to those which DTZ on WEB's objectives for each  would normally expect to apply.

parcel but in general they would

It is not apparent that clear evaluation criteria were published be expected to include:

in advance of the competitive process. It is not always

Non Financial Criteria  necessary to publish these but where appropriate it can help to

• technical capability  establish clear parameters and for the prospective developer to understand the partnering principles that would be important to
• track record – development  WEB.

schemes and Jersey  Although we are comfortable that effective analysis was experience  undertaken, on the basis of the control files read, we are not

• professional team  clear on whether weightings were applied to the criteria.
• delivery plan and ability to

deliver against a timetable

• flair and vision for the

scheme

DTZ has not undertaken an audit of the financial terms secured

• willingness and ability to  for any of the transactions. It would be difficult to apply a comply with WEB's  retrospective review and this is outside our terms of reference. management framework  On the basis of the information provided it appears that WEB
• commercial aspects of  has sought to achieve an appropriate balance between cash proposed scheme,  payments whilst protecting its commercial interests by compliance with planning  including an overage mechanism so that it can share in future brief/design code and  uplifts in value.

strengths of any non

compliant proposals

• conditionality

Financial Criteria

• financial standing
• price- up front and profit share

Bring each development parcel to  The timeline in Appendix 5 plots the pre-delivery and

the market in a strategic manner  construction phases of each parcel to date. Our observations to select the best development  on the release of these sites into the market are as follows: partner against the agreed  Our understanding is that the Waterfront was criteria.

reclaimed, levelled and prepared for development and so there were no abnormal development factors which might have slowed the process of development. Given this we consider that the release of the sites has been slower than expected.

• We have highlighted in the introduction to this section some of the factors that may have slowed the process including the Le Pas dispute, generally slow decision making processes in the States Assembly and instances of States interference.
• The release of the Waterfront Hotel site as an early phase development parcel would have been unlikely to have maximised receipts as hotel operators generally prefer a more certain operating environment. That said, it is evident that there was some pressure on WEB to achieve an early "win." This in itself is not an unusual strategy in regeneration areas.
• The leisure complex is not an attractive scheme to be located at a key gateway site. Clearly commercial leisure operators require good road frontage but we question the merits of releasing this parcel without controlling its long term physical appearance, or the ability to effectively reduce its impact by landscaping. This is a key site which will impact visually on the proposed financial district at the Esplanade Quarter.
• Schemes could have been developed in parallel rather than sequentially. This could have created critical mass and added to sense of activity. We recognise that lack of demand and construction market capacity may have been preventing factors.
• Our consultations suggest that as well as WEB not leading the process, there was a weak planning system (now strengthened) and political interventions which slowed the process and diffracted the focus.
• The slow pace of development has meant that the overall project has progressed against a backdrop of the market cycles.

Conclusions and Implications

2. Our conclusions in relation to the procurement approach of WEB are as follows:

• It is evident that whilst specific schemes have been marketed outside Jersey to some extent, the wider Waterfront opportunity has not been fully exposed or promoted to the international development market. This cannot be wholly attributed to WEB and we recognise the difficulties of entering the market but much more substantial barriers to entry (e.g. currency risk, opaque markets, poor governance, uncertain ownership laws, language barriers etc) have been overcome by many major UK and continental European developers who have entered developing markets in central and eastern Europe over the last 10 years or so.
• Within the limited market that it has pursued, the evidence that we have seen would support the conclusion that WEB operated a level playing field with open and transparent competition. The one exception appears to have been the exclusivity agreement for Les Jardins which was not subjected to market testing. There are some mitigating circumstances given the international tourism and leisure experience offered but we would generally recommend at least some market testing for any future land transactions.

The control files that we have read indicate that there was appropriate competitive tension during the main bidding phases. As detailed earlier in this report there was an instance of where this competitive edge was subsequently relinquished because exclusivity agreements appear to have been poorly drafted.

5. Estate Management Protocols and Exit Strategy

1. It ought to be a critical part of the Waterfront, given its strategic location on the waterfront and adjacent to the town centre, that it is an integrated development: well planned with linkages between buildings and a very high standard of open space, public amenity and infrastructure. As such, it is important that WEB should have put in place effective land ownership and management regimes to enable such integration to take place over the life of the developments and beyond. A clear management framework is also a key building block to enable WEB to prepare a long term exit strategy.
2. Each individual development parcel needs to be capable of viable development and that the completed development can be sold as a separate investment if necessary. In addition however, WEB should have required that:

• Individual development parcels are compliant with the Masterplan; and
• The value created from individual developments is used in part to contribute to the management of the overall infrastructure.

3. Combined, these two factors will influence how WEB can exit from the scheme when all component parts have been completed.
4. In this context, WEB ought to have established an estate management regime which ensured that it – or a successor body to which it might subsequently wish to transfer its interests, such as a Department of the States – maintained long term control over issues such as:

• The type of use of the buildings
• Long term design considerations
• Future management and maintenance requirements

5. There are of course examples of where individual parcels are sold off without any long term control by the master developer. However if this approach is pursued then it would have to be accepted that WEB would lose control of the long term integrity of the development.
6. Overall, we consider that WEB has managed to maintain some control over the development but there are two issues which have not been resolved:

• Some significant areas of public realm have yet to be transferred to the Parish. This leaves an annual funding gap for maintenance which requires WEB to retain income producing assets or the allocation of income from the States, e.g. income from the Cafe Fregate is provided to WEB to cover the cost of maintaining Les Jardins de la Mer
• The investment assets that are held are not necessarily best owned by WEB as a development vehicle. WEB maintains that it is better able to manage these assets (e.g. the Waterfront car Park) because it can bring entrepreneurial flair (and in the specific case of the car park needs to use the capacity to enable the Esplanade Quarter development). It is indeed evident that the financial performance of the car park has improved since WEB took control back from Serco, but as a general principle the sustained ownership of these types of assets does not sit easily with an organisation whose primary purpose ought to be the coordination of development.

7. The following case studies on the Waterfront hotel development and the Esplanade Quarter are illustrative of many of the themes and points set out in this section.

The Waterfront Hotel

The requirement for a branded four or five star hotel formed part of the original Masterplanning brief to Andrews Downie in 1990 and its current location was indentified within P123/1992. The timeline below describes the key stages in the progress of its development over the subsequent 15 years:

1996-1997 – Local and international marketing campaign led to selection of a shortlist of six developers. A development brief was prepared by WEB in consultation with the Planning and Environment Committee (PEC) but was unable to be fixed until June 1998 following a States debate on the location and scale of housing in West of Albert

November 1998-July 1999 – Bilfinger and Berger selected as preferred developer after other shortlisted developers withdrew. In July 1999 the PEC rejected proposed plans for hotel, leading to new design framework

AAuddguressist 19ng99 t–hePse 112tw/1o issu999 lodes wged ilto l beresrceinqd duiredeci sifioWn tEo bB uis ild hto opltelan aned tffeco rtiepvellacy feor  wiathcompl publice greete exn it space – this was rejected

Jafronmuarthey 2de000vel–opFebrumenart ony 20ce co00 - mPlplanete.ning application submitted for 238 room hotel, approved subject to elevations.

Feb to June 2000 – Heads of Terms agreed with developer and put before States based on WEB receiving 3% per annum turnover rent

2000-2003 – Market downturn eventually led to Bilfinger and Berger withdrawing from the scheme. - A new development agreement was signed with JWHL as developers and Marriott as hotel operators but by 2004 viability assessments drove a reduction in scale to 189 rooms as a first phase development, and for WEB to agree to reduce turnover rent during first 3 years to allow trading to be established

May 2000 – Petition of 8,200 signatures lodged in States to stop Waterfront hotel

January 2005 – Hotel management agreement signed with Radisson SAS. In direct discussions between the developer and PEC, revised designs omitted balconies on sea front elevations to reduce costs. March 2005 – Planning permission granted and construction commenced

2007 – Construction completed and hotel opens

Commentary

• Prevailing public opinion is that the resulting building is an unattractive and compromised piece of architecture in terms of its overall form and massing, and the detail of its external design. Indeed it was the unfortunate recipient of Building Design Magazine's national award for poor architecture in 2008.
• In spite of this, we understand that it is now one of Radisson's best performing hotels and the development appears to have acted as a catalyst for some much needed investment in a number of Jersey's other main hotels. Within the last 3 years several have undergone major refurbishments and extensions to enable them to compete.
• Arguably from a commercial perspective, the hotel is in the wrong position on the Waterfront, occupying one of the highest value plots.
• The lack of an unambiguous Masterplan for the wider Waterfront area undoubtedly caused delay and led to the loss of a number of initial bidders in 1996/7.
• States Members rescindment propositions have not aided the procurement process and although overturned, will have acted as a distraction to WEB and potentially undermined bidder's confidence.
• A better overall design could have been addressed by the existence of a clear design code for the Waterfront area at an earlier stage. But it is generally accepted that design was not a prominent issue at the time and this has only recently changed as a reflection of the interest of the incumbent Planning Minister.
• At certain points, e.g.in July 1999, it is clear that relations between WEB and the planning department were not functioning effectively – leading at critical stages to misunderstandings and miscommunications around what would be required within an acceptable planning application.
• Some of the cost saving design compromises were agreed at the eleventh hour between the developer and PEC and did not directly involve WEB. Undoubtedly there will have been an overwhelming political imperative to deliver the hotel after such a protracted delay, but it may be argued that the planning department allowed these changes to stand when with hindsight, they m34i ght have pushed back harder against the developer.

The Esplanade Quarter

The Esplanade Quarter is a key strategic site for the future economic growth and prosperity of Jersey, providing the only opportunity for financial sector occupiers to acquire buildings with large modern floor plates. The timeline described below spans a period of growth and subsequent decline in the property market and financial services sector. The risk is that with the planning application still undetermined, Jersey will also fail to capitalise on the next market recovery within the next two to three years.

The Waterfront 2000 Masterplan had the area as two separate development sites – Esplanade Square and Les Jardins.

2004-6 WEB did not competitively tender Les Jardins site and received an offer from David Crossland acting through two wholly owned SPVs to develop a tourism offer on Les Jardins site in a JV with Centre Parcs. The Esplanade site was competitively tendered and marketed in Jersey and overseas. Harcourt were selected for the Esplanade site ahead of Long Port Properties and ING/Hawk. These developers progressed detailed plans and designs in preparation for submitting planning applications. 2006 - Planning & Environment Minister adopted Supplementary Planning Guidance for the Waterfront following an independent inspectors review. The Inspector recommended that the P&E Minister should appoint an architectural advisor to ensure that quality was delivered on the Waterfront and that the remaining developments were co-ordinated. Hopkins appointed as Minister's architectural advisor and commissioned new Masterplan.

Harcourt took over Crossland's exclusivity agreement with 18 months left to run

July 2007 - WEB entered into Heads of Terms with Harcourt on the whole site.

April 2008 – final version of Hopkins finished Masterplan presented – mixed use development comprising 620,000 sq. ft. office accommodation, c. 400 residential units, a 100 bed hotel, retail and restaurants, 1420 underground car parking spaces and the sinking of La Route de la Liberation

June 2008 - the States Assembly adopted P60/2008 which approved the Esplanade Quarter Masterplan. July 2008 - the States Assembly rejected P97/2008 to rescind the decision to approve Masterplan. August 2008 - A hybrid Planning Application for the Esplanade Quarter was submitted by Harcourt Developments Limited and Waterfront Enterprise Board Ltd

October 2008 - A Planning Inquiry was held in and the Inspector reported in December with a strong recommendation to grant permission subject to conditions

14th July 2009 - Heads of Terms with Harcourt terminated.

15th July 2009 – States Assembly approved proposition to delay development with Harcourt until signs of economic recovery (pre-lets of 200,000 sq ft)

August 2009 – Harcourt asked to demonstrate they had funding - WEB ended Harcourt's preferred developer status as this was not forthcoming.

Commentary

• The lack of a clear Masterplan for the area in 2004 created the opportunity for Crossland to come forward with plans that were with hindsight over ambitious, overscaled and unlikely to meet with the approval of the Planners
• WEB did not exert proper control over the public consultation process which was effectively driven by Crossland themselves.
• The exclusivity agreement with Crossland was drafted so as to allow its assignment to Harcourt without WEB having the opportunity to re tender. This was a fairly serious failing on the part of the then legal advisors, WEB executives and arguably also the WEB Board in not understanding the detailed implications of the agreement they were entering into.
• In revoking their preferred developer status, WEB has acted firmly and decisively in their most recent dealings with Harcourt.

5. Financial Review and Contract Commitments

1. Corporate Structure

1. WEB is established as a wholly owned subsidiary of the States of Jersey has a straightforward company structure within which there are four wholly owned subsidiary companies, noted below, all established in 2005 to enable land to be transferred to developers via share sales, without attracting stamp duty land tax. It has no individual profit and loss accounts and the value of the assets held within it is shown on the consolidated balance sheet.

2. We regard this financial structuring as generally appropriate for an organisation whose main purpose hitherto has been to act as a development agency whose transactions involve the sale of land subject to development agreements rather than participation in direct development with the attendant risks.
3. The subsidiaries arrangements appear sensible from a commercial perspective, as the resultant reduction in purchaser's costs should enable them to offer better commercial terms to WEB, although in so doing is depriving the States of the tax revenue.
4. We do not believe therefore, that it should expose the States to any particular risks  but would advise the States to seek specialist advice from a firm of lawyers or PWC,  WEB's accountants and auditors if further reassurance is required. Specialist advice  on appropriate company structuring should also be sought if, as anticipated, SoJDC  is to undertake direct development either on its own or through joint ventures with

  private sector partners.

2. Financial Position

5.2.2  We have not undertaken a detailed and forensic analysis of WEB's financial position for this review but have received a copy of the audited accounts for 31st December 2009 which contain detailed notes and statements on WEB's financial position and performance over the last year. In summary:

Profit and Loss

WEB showed a net profit for the year of £530,000 derived from:

Turnover   £ 766,000

Operating costs   £1,377,000

Operating Exceptional items  £ 894,000

Finance Income   £ 247,000 Balance Sheet

WEB has total net assets on its balance sheet of £39.5m consisting of:

• Investment properties worth £7.8m
• Other tangible assets of £1.4m
• Current assets investments of £21.86m
• Cash and Debtors of £8.9m
• Creditors of £0.5m

3. Commentary

1. 2009 turnover does not cover WEB's operating costs and without the upwards revaluation of its investment properties (totalling £985,000) WEB would have made an operating loss.
2. The majority of WEB's turnover is derived from income on its investment properties and car park receipts. After the deduction of estate management costs, WEB yields a net annual income of £475,000 which funds a significant proportion of its total operating expenses. The other principal operating costs item is salaries (£830,000).
3. WEB is also currently responsible for administering a number of States owned assets which are including La Fregate cafe, le Jardin de la Mer Park and maze, Steam Clock and Gardens and the roads and promenades. This costs WEB £222,577 per annum with offsetting income of £23,580 per annum.
4. Accounting policies require that current asset investments i.e. land held for disposal are valued on the basis of established carrying cost plus capitalised expenditure, however the net realisable value of the same assets taking into account future development potential has been assessed by independent valuers at £71m at the same date.
5. Current cash resources do position WEB to meet necessary commitments related to developing sites. The market value of land assets it holds could also provide the security for any future borrowing that would be required to fund the East of Albert Development Area and Esplanade Quarter.

6. WEB's 2010 draft business plan plots a cash flow over the next 10 years which

delivers accumulated cash balance of £83.22m by 2019 and its ability to deliver a

significant financial dividend to the States in the future will therefore be dependent on achieving planning permissions, development agreements and land sales on these

sites at these projected values.

4. Contract Commitments

1. WEB is party to various contracts in the form of development agreements, leases and service & maintenance contracts.
2. The only extant development agreements are those relating to the developments at Castle Quay and Liberty Wharf. The development agreement for the second phase of the hotel development (now the Westwater site) was terminated.
3. We have reviewed the Heads of Terms of the extant development agreements. All of them contracts confer the majority of their obligations on the counter party rather than WEB, and WEB have identified to us only the following notable contract commitments:

• Castle Quay – WEB is obligated (at its request) to purchase 10 basement car parking spaces in Castle Quay phase 1 for Marina Users.
• Castle Quay – assuming the developer satisfies all conditions precedent, WEB is obligated to sell to Dandara the Castle Quay phase 2 site
• WEB has a contingent commitment to fund £100,000 towards a new youth facility above the Waterfront car park

4. None of these commitments appear likely to present any significant risks to WEB or to the States as the Shareholder.

6. WEB Organisation and Staffing

1. From its inception in 1995 until as recently as 2003, WEB operated with three employed staff – the Managing Director, Finance Director and an administrative assistant. In the period since, the total complement of employed staff has risen gradually to eight roles described in the green boxes below.

WEB  WEB  WEB  Managing  WEB  WEB Board  Board  Board  Director  Board  Board

Executive  Director of Assistant  Finance

Finance Manager

Development  Project  Project  Estate & Contract

Manager  Engineer  Manager  Manager

2. For this review we have not reviewed each job role in detail but to inform a view on the appropriateness of staffing levels within WEB, we have undertaken a desktop review of two UK regeneration bodies, Waterfront Edinburgh and Nottingham Regeneration, with similar characteristics and remit to WEB. A comparison of these bodies alongside WEB is shown in the table below.

Resourcing  Managing Director  Interim Chief  Chief Executive

Director of Finance  Executive  Business

& Administration  Head of Finances  Development

Finance Manager  and Resources  Director

Development  Director of  Development Manager  Regeneration  Engineer

Project Manager  Regeneration  Marketing and

Estate & Contracts  Executive  Communications Manager  Principal Project  Manager

2 x Admin Support  Officer  Head of Finance

Project Engineer (on  2 x Senior  Estates Manager secondment from  Projects Officer

T&TS)  2 x Admin

Support

TOTAL 6 TOTAL 8 FTE  TOTAL 9  (excl. security)

3. Nottingham Regeneration Ltd

6.3.1  Nottingham Regeneration Limited (NRL) manages the City of Nottingham's three regeneration areas: the Waterside, Eastside and Southside, in addition to regeneration in the Wider Greater Nottingham area. Set up as a public/ private partnership in 1998, Nottingham City Council, East Midlands Development Agency, Homes and Communities Agency and members of the private sector are on the board.

4. In partnership with British Waterways, NRL is leading the regeneration of the 100 ha Waterside, with the main focus being on creating a series of new neighbourhoods linked by Trent River Park, encouraging leisure, sports and water activities. At present the Masterplan is in place and Interim Planning Guidance has been adopted.
5. The Eastside's 56 ha site has a more urban setting, with intended office, leisure and residential developments. NRL plans to create an extension of the existing high-tech office corridor, an area of student accommodation, specialist retail zones and develop large schemes on flagship sites for public sector organisations and inward investors. Planning permission has been granted for the Greater Island Site, a scheme including 3 million sq ft of residential and 1.4 million sq ft of commercial space.
6. The Southside regeneration site comprises 38 ha around the city's railway station; a new transport hub with rail services, tram lines, bus, car and coach interchanges is being constructed to bring more people to the area and act as a catalyst for the development of offices, shops and homes.

Waterfront Edinburgh Ltd

7. Waterfront Edinburgh Ltd was created in 2000 to promote, support and effect the development of the site at Granton as identified in, and with accordance to, a Masterplan. This Masterplan has been recently incorporated in the Draft Edinburgh Local Plan, which designates the site as an Area of Major Change.
8. The urban design framework and subsequent planning permissions will allow the development of up to 8,000 new houses, offices and business uses, two new neighbourhood community centres with local shopping and community services, two new primary schools and hotel and leisure facilities. A number of residential and commercial properties have been completed, and public spaces such as a square, cycle path and a 17km promenade are planned.
9. On comparing Nottingham Regeneration Ltd, Edinburgh Waterfront Ltd and WEB. Our general observations are:

• With only three staff on its payroll until 2003 WEB appears to have been significantly under resourced for a number of years.
• Even now with eight staff, WEB has a very lean resource base with which to deliver its remit – this view is supported by the majority of those both within and outside WEB that we spoke to for the review.
• WEB's staff numbers and the composition of roles compares closely with both the Edinburgh and Nottingham regeneration bodies. In addition to the Chief Executive and Finance Director, Nottingham has five project management and technical staff and Edinburgh has four. This compares to four in WEB. All three bodies have two administrative staff.
• Average salary costs cannot be reliably benchmarked from the information available in the accounts for Nottingham and Edinburgh, but we are informed by WEB's Managing Director that the company commissions independent market benchmarking of employee remuneration on a bi- annual basis.
• WEB outsources legal advice and other professional and technical property services such as valuation and surveys and this approach is common to most regeneration bodies. Some of the larger organisations such as Thames Gateway Development Corporation (LTGDC) which have specific planning determination powers, may have larger internal headcount as a result ( LTGDC has around 40 FTEs). We understand that Waterfront Edinburgh has previously employed up to 20 staff directly including architects and surveyors, but has wound this down in response to market conditions
• The Managing Director of WEB has identified a requirement for an additional project manager in the relative short term. If SoJDC is take on a significant direct development responsibility, this would require no more than 2 or 3 project managers, although peaks and troughs in workload could be managed effectively by the hiring of contracted staff.
• If some of WEB's non core property management responsibilities are to transfer back to the States, there may be an opportunity to reduce the resource in this area.

7. Activities Review

1. We have identified below the main stages that need to be pursued for an effective delivery of a complex development scheme such as the Waterfront. Clearly this is a high level assessment, the purpose of which is to identify the main stages and tasks in order to inform an assessment of the optimum "owner" of each task.
2. We consider this allocation of activities to be entirely consistent with P.79, which seeks above all to separate responsibility for Master planning (the preserve of the Minister for Planning and Environment) from the delivery of public sector development (the preserve of SoJDC either on its own or with private sector partners).

8. Review of current assets and retention policy

1. As described in Section 5, as well as its own land and investment assets WEB is responsible for administering a number of States owned assets which are not held on its own balance sheet.
2. The picture presented to us is of a complicated and inconsistent set of arrangements driven by expediency and legacy funding issues rather than by the application of a clear set of principles concerning the retention and management of assets. This gives rise to a number of issues:

• Whilst WEB have highlighted their success in significantly raising income from the car park since taking over the contract from Serco, it is inefficient in the longer term for the States to have both WEB and JPH managing property
• We understand there have been some difficulties in the past in handing back assets where there is no accompanying endowment fund or commuted payment to cover future maintenance and running costs

3. Whilst not necessarily critical to the functioning of SoJDC it would seem to us appropriate that as part of the change from WEB to SoJDC, efforts should be made to rectify these anomalies, to place the funding of SoJDC on a more transparent and logical footing, and to allow SoJDC to focus on its main purpose as a development delivery vehicle. The policy for holding assets in future should be guided by the following principles:

• There should be a clear exit strategy for all assets
• In the future, the identification of costs for maintaining public realm etc should be identified as early as possible within the original scheme (i.e. at planning stage).
• New infrastructure that would normally be capable of adoption should be transferred to the parish and funded out of rates. For other areas of public realm within defined development curtileges, with higher than usual maintenance costs or carrying a contingent liability, provisions should be made to capture contributions through estate service charges arrangements or a commuted sum payable from WEB out of land receipts.

.

• Completed assets should only be retained by SOJDC where it is necessary to maintain management control in order to support the marketing and  sale  of new developments in the vicinity (in some cases this may mean retention  by SOJDC for a number of years).
• Once developments have been completed, they should be sold in the open market or if there a strategic reason for long term ownership by the States, transferred to SOJ at market value.
• Where assets are sold into the market, they should be subject to an independent valuation to ensure best value is being achieved

4. We have applied these principles to a review of WEB's assets and set out in the table below our recommendations for each in terms of sale, retention by SoJDC or transfer back to JPH.

9. Asset Transfer Protocols

1. When initially incorporated as a company, WEB did not have any assets transferred to it. Instead, it had administrative control over the land. It was subsequently agreed in 2002 that an interest in the land within the Waterfront should be vested in WEB. It was agreed that the majority of the development land would be transferred from the States under a 150 year lease at a peppercorn rent.
2. In practice, not all of the land was transferred:

• WEB has drawn down such elements of the demised land by way of individual leases as and when required to facilitate specific schemes.
• Some undeveloped land within the Waterfront therefore continues to be vested in the States.
• Some areas that have been developed without a long lease and therefore also continue to be vested in the States for reasons that have not been made clear. These areas are: Liberation Square, the Steam Clock, Jardin de la Mer (including Le Fregate). For these assets the maintenance liability and any income derived has remained with WEB.

3. It is apparent that the protocols for land transfer to WEB have changed over its life and that the protocols have been implemented inconsistently. The SoJDC proposition sets out high level principles for the transfer of assets based on recommendations made in our original report. In the course of producing our report these have been developed into a set of more detailed protocols which are included in Appendix 6.
4. These are in summary that:

• For land or buildings outside designated Regeneration Zones, transfers from JPH to SoJDC should be at market value, assessed by an independent valuer.
• For land or buildings within designated Regeneration Zones, independent valuations should be obtained on both an open market basis ( taking into account any existing planning permissions), and on a residual basis that takes into account its position within a wider Masterplan area and the particular asset's share of the costs of delivering public realm and infrastructure improvements to that area.
• A political decision can then be made as to whether to transfer the asset at lower than market value, in order to progress the regeneration scheme.

• Privately owned land may be acquired, either by private treaty or through compulsory purchase by the States, with SoJDC meeting the transaction costs upon transfer
• New public infrastructure should ordinarily be transferred to the respective parish, with costs of future management met by increases in Parish rates generated from development.
• If agreement cannot be reached with the parishes, it can be transferred back to JPH at a nominal sum but with an appropriate revenue stream to cover future costs.

5. These protocols establish an effective platform for the development of more detailed set of transfer arrangements to apply to specific schemes and assets in the future.

10. Risk Management Regime and Project Risk Plans

1. As the role of SoJDC changes to encompass direct development, its approach to risk management needs to be articulated clearly via:

1. A clear set of risk management policy standards that define a framework by which business and operational risk is managed in the performance of SoJDC activities to meet the requirements of business management and good governance.
2. A codified set of processes that reflect the nature of activities being undertaken, the nature of business and operational risks faced and the level of control considered necessary to protect the interests of stakeholders.

2. Risk management principles are set out in Proposition P79/2009 and the accompanying Memorandum of Understanding relating to the creation of SoJDC. We have already commented on these in detail in our Review of Proposals for SoJDC in May 2009 and consider them to be appropriate for the future operation of the company.
3. We have also explored with WEB their current approaches to risk management at a project level and established that a number of these principles are supported by existing good practices and processes within WEB including market demand assessments, the application of sophisticated financial risk modelling tools in assessing project feasibility, and risk management matrices that are used to manage non financial risks through the project lifecycle. These processes have already recently been collated by WEB into a risk assessment and management plan which includes:
   1. A high level rating of the reputational, political, financial, human resource and industry relationship risks encountered at the feasibility, pre construction, construction and post construction phases of projects
   2. A more detailed two stage approach to analysing financial risk at project feasibility stage which references specific industry standard risk management tools and methodologies including @Risk software, the Hurwitz approach to optimism bias and SWOT analysis.
   3. A sample risk register to serve as a risk management tool through all project stages beyond feasibility.

5. We have also reviewed examples of development industry good practice in the management of risk, and have enclosed in the Appendix 7 a draft policy standard for further consideration by the SoJDC Board, and below, a consolidated risk assessment approach which identifies the principle internal and external areas of risk SoJDC at both corporate and project level, their potential impacts and how they should be mitigated.

5. Governance

1. It is not within the terms of reference of this review to consider the proposed governance arrangements for SoJDC but it was matter given prominence in many of our interviews and has a bearing on the how political and commercial risk is managed.  
2. Effective risk management requires appropriate oversight by a strong Board and Shareholder. We agree that this will be better delivered in future through the move to the Treasury and Resources Minster as the main Shareholder under new proposed arrangements which will bring necessary clarity to the role of SoJDC and experience from the oversight role with Jersey Telecom and Jersey Water.
3. The separation of the Minister for Planning and Environment from the Regeneration Steering Group (RSG) ensures a clear distinction of responsibility for planning policy, and for the interpretation of the States requirements and directing SoJDC in their delivery.
4. It was particularly apparent during our consultation that there was a divergence of views between WEB and its current Board, and States Officers as to the likely effectiveness of proposed governance arrangements and the role of the RSG. (We recognised at the time some of WEB's concerns that the RSG has the potential to slow up decision making and the questions raised in the Corporate Services Scrutiny Panel Report in October 2009 around the role of the Minister for Treasury and Resources on the RSG.
5. In response to these concerns, the Chief Minister and WEB Board have met in the intervening period to ensure there is clarity over the role of the RSG. As a result, revisions to the proposition are planned to ensure that this is fully understood by the States Assembly. These are in summary:

• That the RSG's role is in the development planning aspects of regeneration (i.e. translating masterplans into workable development plans).In this sense the RSG provides a guiding framework for the activities of SoJDC in delivering a particular Development Plan.
• This work will require a contribution from a range of States Departments and SoJDC itself and RSG will provide political guidance and co-ordination to the process of regeneration to ensure a balanced outcome.
• Other than receiving regular progress updates and approving any changes to agreed Plans, the RSG has no direct responsibility for operational matters relating to the SoJDC, which is the responsibility of the Board of Directors.
• SoJDC will be responsible for delivering plans and the political accountability for this delivery and the operation of the company rests solely with the Treasury

and Resources Minister.

6. In our view the RSG is a necessary structure/vehicle for providing political oversight and for ensuring that SoJDC is not perceived as being purely commercially driven. It needs to be chaired effectively to deliver the required consensus and clear direction to SoJDC.
7. We also endorse the recruitment of an experienced property industry figures as

 Chairman and non executive directors of SoJDC to take decisions on the management of the company and to bring effective challenge to the Executive on development risks and commercial arrangements

11. Capacity of WEB to purchase private assets

1. P79 identifies that as well as continuing the activities of WEB in developing the Waterfront, the Jersey Development Company (SoJDC) may also "purchase and develop property assets that are required to achieve the regeneration strategies of the Regeneration Steering Group".
2. We do not see any legal impediment to SoJDC purchasing private assets in its own right but if there is any question over this, would recommend that clear legal advice is obtained.
3. Assuming this to be the case, we recommend that such purchases should be governed by the following set of principles and protocols:

1. All acquisitions of private, third party assets should be undertaken in the context of a need to rationalise land ownerships as part of a clear regeneration strategy rather than as ad hoc opportunistic purchases.
2. They should not be pursued in preference to the acquisition or transfer into SoJDC of State owned assets that would satisfy the same strategic objectives.
3. Proposed purchases should be subject to a business case approved by the Treasury and Resources Minister which sets out the strategic and commercial rationale.
4. Acquisitions should be undertaken on a transparent arms length basis.
5. They should be negotiated on the basis of Open Market Value and underwritten by a third party valuer.
6. Individual property transactions will be approved by the Treasury and Resources Minister and be subject to a published Ministerial Decision
7. Compulsory Purchase should only be pursued as a last resort where acquisition by negotiation is unlikely to succeed.
8. Where compulsory purchase powers are required, the Minister for Planning and the Environment will be the acquiring authority and States Assembly approval will be required. Once acquired through CPO, the assets can then be transferred to SoJDC on the basis of the protocols set out above in Section 9.

APPENDICES

Appendix 1 – Terms or Reference

Review of the Waterfront Enterprise Board

Terms of Reference 16th November, 2009

1. Introduction

1. The following Terms of Reference sets out the background to, purpose, key objectives and outline timescales for a review of the Waterfront Enterprise Board ("WEB") in relation to the proposal to restructure of WEB into States of Jersey Development Company ("SoJDC").
   2. Purpose

1. The Chief Minister of the States of Jersey (SoJ) requires an independent external review of WEB in relation to the proposal to restructure WEB into the SoJDC and to implement new arrangements for oversight of regeneration within the Island.
2. The purpose of SoJDC is to act as the retained development company for the delivery of regeneration of property and infrastructure projects for the SoJ.
3. As part of the political scrutiny review and subsequent debate of the proposal, the need to undertake a review of WEB has been identified. The scrutiny report recommended, amongst other things, a review of the activities undertaken by WEB, and the assets it holds.
4. The States Assembly has determined that this review should take place and be presented to the House before it debates the SoJDC proposition again.

3. Background and Context

1. The SoJ established WEB in 1995 to promote the development of the waterfront  in  St  Helier.  Over  the  last  14  years  it  has  delivered  a significant number of new buildings and associated infrastructure (see document  9).   All  of  these  developments  have  been  subject  to  the relevant SoJ and/or Ministerial approvals.
2. The SoJ also set up Jersey Property Holdings (JPH) in 2006 to manage more effectively the property assets of SoJ and to identify in particular surplus and underutilised assets that could be disposed of. In certain cases relating to particular regeneration strategies, such assets could instead be redeveloped by SoJDC as the preferred developer.

4. The remit of WEB is currently limited to the redevelopment of the St Helier Waterfront whereas the need going forward is the promotion of redevelopment and regeneration throughout the Island of Jersey. SoJ has  therefore  been  examining  options  for  establishing  a  suitable structure to facilitate this work.
5. In June 2009, the Council of Ministers ("CoM") submitted to the States Assembly the proposition to form SoJDC (P.79/2009). This set out a revised structure which clearly separated the functions of Master planning, Development Specification and project delivery.
6. The Corporate Services Scrutiny Panel ("Scrutiny Panel") carried out a review of the proposal and submitted a report and recommendations (S.R.9/2009) to the States on the 2nd October 2009.
7. The Chief Minister responded to this report on the 19th October, 2009 accepting all its recommendations.
8. On the 3rd November 2009, the States Assembly debated the proposal to form SoJDC and decided to refer-back the proposition pending the outcome  of  those  reviews  identified  by  the  Scrutiny  Panel.  This effectively  postponed  the  debate  on  SoJDC  until  all  the  reviews requested by the Scrutiny Panel have been completed and the findings available to States Members.

4. The need for review

1. The Scrutiny Panel made a number of observations where it felt further detail was required. The principle area was that a review of the activities currently undertaken by WEB, and the assets it holds, would confirm what activities SoJDC would undertake and thereby lead to a clearer understanding  of  the  rôle  of  the  new  Company  within  the  revised arrangements for regeneration.
2. WEB presently operates as a development agency, preparing master plans, specifying development projects, holding property from which it derives a rental income to cover the costs of maintaining the retained property  and  public  realm  as  well  as  promoting  the  delivery  of development projects. In the new structure SoJDC would have an Island wide geographical remit but will confine its activities to project delivery.
3. WEB holds and manages its estate for a necessary period in order to maximise the development value of its development sites and to assist developers  during  the  period  of  sale  or  rental  of  the  underlying residential or commercial product. The intention is to hand the assets back to the SoJ when development is completed.
4. The recommendation of the Scrutiny Panel within S.R. 9/2009 was that, before  the  company  becomes  operational,  the  Chief  Minister  should commission an independent review of the activities and the assets of WEB and establish what activities and assets should be held by the new company.

5. Other issues identified by the Scrutiny Panel that need to be addressed by the review include:

• setting out clear protocols for the transfer of assets between JPH and SoJDC;
• developing a detailed risk management regime, including individual project risk management;
• review the capacity of SoJDC to purchase privately owned assets and put in place protocols to ensure that the most effective vehicle is used in such purchases.

6. As a result of the States debate on 3rd November 2009, a review will need to be completed discussed and facts checked with the Board of WEB and findings shared with the Corporate Services Scrutiny Panel and  published  to  States  Members  before  the  debate  on  SoJDC proposals can be undertaken.

5. Terms of Reference

1. The Terms of Reference for the proposed review are as follows:

1. To review and evaluate the past and current performance of the Waterfront Enterprise Board in the promotion and delivery of regeneration projects in the St Helier Waterfront area, including:
   1. what WEB has delivered;
   2. the benefits delivered to the States of Jersey as a result;
   3. the current financial structure of WEB, and its contract commitments.
2. To review the structure and levels of staffing within WEB and advise the Minister how this compares with comparable development companies.
3. To review the current activities of the Waterfront Enterprise Board in respect of regeneration master planning, development promotion, project specification, project implementation and exploitation; and to advise the Chief Minister on which activities are appropriate to the proposed operation of the SoJDC and where those activities not thought to be appropriate should be undertaken.
4. To review the current assets held by WEB, their tenure and value, income generation and holding costs and to advise the Chief Minister as to which assets should be retained in SoJDC, which should transfer to the Public and the timing of such transfers.
5. To review and establish clear protocols for the transfer of assets between JPH and the Company.

6. To develop a detailed risk management regime that includes individual project Risk Management Plans.
7. To review the capacity of the SoJDC to purchase privately-owned assets and to advise on the protocols required to ensure the most effective vehicle is used to effect such purchases.

2. The outcome of the review will be a report setting out the key findings from the above, which will be discussed and facts checked with the board of WEB and which will be shared with the Scrutiny Panel and published to all States Members in advance of the debate. It should be noted that the findings will become public domain.

6. Management of the Review

1. The review has been commissioned by the Chief Minister. Based on the review he will develop a proposition to be considered by the Council of Ministers before being shared with the Scrutiny Panel and submitted to the States Assembly as part of the debate on SOJDC.
2. The Chief Executive of the States of Jersey will be responsible for the co-ordination of the review.

7. Timeline

7.1  The following outline timeline is envisaged, though this will be subject to review on agreement of proposals to undertake the work:

* subject to proposal

8. Subsequent Organisational Issues

8.1  The States decisions in relation to the activities and holding of assets will be binding on the Treasury and Resources Minister and the Company. However it is the responsibility of the Board to determine and implement

changes to the structure and operation of SOJDC. Clearly as the company will have a new remit and a new Board, one of the first duties of that Board will be to review the structure. Any organisational changes arising from the above will also be the responsibility of the new Board.

9. Documents

9.1  All necessary documents will be made available for the purpose of the review including:

1.  Report and Proposition proposing the establishment of the Jersey Development Company (P.79/2009) dated 2nd June, 2009 and amendments. 2.  The Corporate Services Scrutiny Panel report " The Jersey Development Company", dated 2 October, 2009 (S.R.9/2009). 3.  The Chief Ministers response to S.R. 9/2009, dated 19th October, 2009. 4.  P195/1995 the establishment of WEB 5.  P45/2002 the transfer of freehold and long (150 year) leasehold land holdings to WEB. 6.  WEB audited accounts for 2006, 2007 and 2008. 7.  WEB 2009 and 2010 Business Plans (including 10 year cashflow forecast). 8.  Full details of WEB assets including red book valuations. 9.  History of WEB detailing each project and States of Jersey directions, decisions and approvals. 10.  Review of Corporate Governance of WEB, Comptroller and Auditor General, 24th November, 2008.

Appendix 2 – Asset & Project Schedule

ASSET SCHEDULE

Appendix 3 - Map 3-92 for Waterfront Development Area

Appendix 4 - Land Transfer plan

PH 9.7

9.0 10.0

PC 8.0 B86 8.6 B75 B757.6 7.5 7.7 8.5CarPark 9.3

Sand Slipway ioticStreet et OSfftaicteess DevonshirePlace eet 9.4

8.0 Patr sterStre El tStr

Vic( tBora it ah MingarPinoeo Ll) ake Glouce SubSta MagistratesCourt8.5 LeGey 8.2

7.6

8.0 ST. HELIER 8.5 B76 CarPark Garage 8.5

Cenotaph 8.1 8.2 CarPark