Plémont Holiday Village – acquisition by the public and sale to the National Trust for Jersey (P.90/2012) – comments

STATES OF JERSEY

PLÉMONT HOLIDAY VILLAGE – ACQUISITION BY THE PUBLIC AND SALE TO THE NATIONAL TRUST FOR JERSEY (P.90/2012) – COMMENTS

Presented to the States on 10th December 2012 by the Minister for Treasury and Resources

STATES GREFFE

2012   Price code: B  P.90 Com.(re-issue)

COMMENTS

Introduction

The purpose of this report is provide additional information to assist Members in their consideration of P.90/2012 – Plémont Holiday Village – acquisition by the public and sale to the National Trust for Jersey.

It provides further information on –

• the outcome of an up-to-date, independent valuation of the site
• the (net) recommended amount that the States allocates for the purchase of the site and the associated costs based on the valuation
• the options available to fund these costs and a recommendation as to the preferred option.

Independent valuation

Attached at Appendix 1 is a Report, "Plémont Headland – Valuation" from Jersey Property  Holdings  Department.  This  summarises  the  basis  and  outcomes  of  the independent valuation undertaken. The full valuation will be available for Members to inspect at Property Holdings.

The independent valuer has estimated the Market Value for the site as £4,000,000 (rounded).

States funds to be allocated to purchase the site

It is recommended that the sum of £5.5 million be allocated by the States, to cover the total costs of acquiring the site, with a net cost of £3.5 million –

£m Acquisition of site, as valued  4.0 Provision in the event of an increased valuation being made by a Board of Arbitrators  1.0 Provision for costs including those associated with Compulsory Purchase  0.5 5.5

Less: Proceeds of sale to National Trust for Jersey  2.0 Net Amount to be funded by the States  3.5

Options and recommendations for funding

Attached at Appendix 2 is a Briefing Note prepared by the Treasury which outlines the options available to provide the suggested funding.

The  Briefing  Note  makes  the  recommendation  to  the  Minister  for  Treasury  and Resources that if the States is minded to proceed with the proposal to acquire Plémont, the costs be met from contingency. Article 17(2) of the Public Finances (Jersey) Law 2005  provides  that,  "The  Minister  is  authorized  to  approve  the  transfer  from contingency expenditure to heads of expenditure of amounts not exceeding, in total, the amount available for contingency expenditure in a financial year in accordance with paragraph (1)."

It is important to note that the £5.5 million (£3.5 million net cost) of acquisition is based on the valuation provided. It is possible that a higher fee could be agreed, for example, if a process of Compulsory Purchase were to be followed, the final valuation and hence the cost to the States, would be as determined by a Board of Arbitrators.

REPORT OF JERSEY PROPERTY HOLDINGS ON

PLÉMONT HEADLAND – VALUATION

Treasury and Resources Department Property Holdings

December 2012

Purpose

The purpose of this report is to provide a summary to Members of the recently received draft valuation report dated 30th November 2012, of the proposed scheme at the former Plémont holiday camp, as obtained by Jersey Property Holdings from a local Chartered Surveying firm.

Status of the Valuation Report

The report has been provided by an appropriately qualified RICS Registered Valuer and  undertaken  in  accordance  with  the  current  edition  of  the  RICS  Valuation – Professional Standards (effective 30th March 2012).

The report provides an opinion as to the Market Value of the freehold interest in the property at the date of valuation (30th November 2012) subject to the resolution of the Minister for Planning and Environment to grant planning consent for a residential redevelopment scheme.

The valuation is confidential but has been reviewed by the Minister for Treasury and Resources. The valuation report was provided to the client in confidence and may not be disclosed to any other third party without the prior written consent of the valuation firm. The report is available for Members to view on this basis.

Market Value

The report considers the estimated Market Value of the property to be £4,000,000 based on certain assumptions as set out in the report.

Market Value is an internationally recognised basis and is defined as:

The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction and after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.

Methodology

The valuation considers the Gross Development Value (GDV) that is expected to be achieved from sale receipts of the completed residential units together with the costs of construction and other associated costs of development, including an assumption for developer's profit as a percentage of costs, which reflects the developer's expected return on investment.

These costs are then deducted from the GDV to derive a residual value for the land, based upon the assumptions contained within the valuer's report.

Valuation elements and assumptions Gross Development Value

The Minister for Planning and Environment has resolved to grant planning consent to develop the Property to provide 10 x three-bedroom houses, 13 x four-bedroom houses and 5 x five-bedroom houses.

The valuer has estimated the GDV of the completed scheme, generated from the proposed sale of the 28 houses, to be £25,360,000. The proposed development has a total Gross Internal Area (GIA) of 53,897 square feet, which equates to a development value of some £470 per square foot overall of GIA.

The estimate of GDV is supported by comparable transactional sale evidence in the local residential property market as set out in the report.

Construction costs

The valuer has assumed a construction rate of some £197 per square foot of GIA (inclusive  of  garages  and  car  ports),  providing  a  total  construction  cost  of £10,600,000.

The valuer considers that these construction cost estimates are considered fair and reasonable for a scheme of the size, complexity, intended specification and quality of construction proposed to be undertaken at the property.

In addition to the construction cost, the valuer has made the following assumptions as to other costs associated with the proposed development:

Acquisition fees:

Stamp Duty   5% Legal/Surveyor Fees  1.75%  

Professional fees   12.5% build cost Demolition and asbestos removal   £1,100,000

Site works (including landscaping)  £1,200,000  

Provision of services  £300,000  

Site preliminary and set-up costs   £1,200,000 Planning, building control and public art   £200,000 Construction contingency   3% build cost Marketing costs   £100,000 Disposal fees  1.5% GDV  

Finance cost rate   4.5% Developer's profit   15% of cost

Total costs associated with the proposed scheme are estimated at £21,413,366.

The cost estimates incorporated into the report take account of the proposed planning obligations pertaining to the property.

Derivation of estimated Market Value

On  the  basis  of the  estimate  of  GDV  above,  and  total  costs  associated  with  the proposed  scheme,  the  valuer  has  estimated  the  Market  Value  for  the  property  is £4,000,000 (rounded).

Basis for Compulsory Purchase Value Assessment

The valuation report has not been produced with specific regard to the initiation of a Compulsory Purchase process.

The  valuer  has  separately  provided  commentary  with  regard  to  the  possible compensation  payable  to  the  current  owner  of  the  property  by  virtue  of  the Compulsory Purchase of Land (Procedure) (Jersey) Law 1961 (the CPO Law'), in the event  that  the  property  is  acquired  through  the  use  of  appropriate  Compulsory Purchase powers.

The valuer considers that the only head of claim under the CPO Law that the owner is expected to be compensated for relates to the value of land taken and, in the valuer's opinion, the value of land taken is £4,000,000, based on the assumptions stated in the report.

The Board of Arbitrators has absolute discretion as to the payment of any fees, costs, and expenses by the parties, so no there is no certainty that the owner can recover such sums.

There is, however, a presumption that the owner would be entitled to recover all reasonable  costs,  fees,  expenses  properly  incurred  as  a  result  of  the  process  of compulsory acquisition. The valuer estimated this as circa £25,000 to £50,000.

This  sum  does  not  include  any  costs  relating  to  appeals,  disputes  or  any  legal challenge.

Members can be assured that the valuation provided has been undertaken by a suitably qualified and reputable organisation that has appropriate local knowledge.

The estimated Market Value for the property is a professional opinion based on a combination  of  comparable  sales  evidence  to  opine  on  the  GDV  and  reasonable assumptions as to the cost variables, but is not definitive and relies on the assumptions underpinning the variables that support the valuation.

Such assumptions will vary from valuer to valuer, and differences of opinion will impact on the estimated Market Value. The valuer has not had sight of surveys and other data that may vary the assumptions made.

We do not have sight of an equivalent valuation undertaken by the landowner and cannot comment on the evidence in support of statements made in public by the landowner's representative as to value.

BRIEFING NOTE FOR THE MINISTER FROM THE TREASURY

RE FUNDING OPTIONS FOR PLÉMONT

Options for funding Plémont

If the States wishes to acquire the land and property at Plémont, I would recommend that the costs be met from contingency in 2013. The 2013 contingencies which will comprise unspent contingency balances from 2012 in addition to those earmarked for carry forward in the Medium Term Financial Plan.

The other sources considered are set out below for your information – Infrastructure Investment

The  Currency  Fund  is  available  for  Infrastructure  Investments  but  would  require repayment  and  a  financial  return  which  is  not  available  within  existing  revenue expenditure budgets.

Reprioritisation of capital programme

The 2013 Capital Programme has only just been approved by the States as part of the 2013 Budget and it is not, therefore, deemed appropriate to vary this approval.

Unspent capital balances from prior year approvals

The Quarter 3 monitoring report for capital expenditure identifies £79.1 million of unspent  capital  balances  at  the  end  of  2012  for  non  trading  departments.  These balances are all committed to approved schemes. Departments have indicated that there will only be a minor proportion of these balances that may not be required.

As a result of these unspent balances there may be opportunity to re-phase existing approvals such that there is a contribution towards Plémont in 2013 which would then have to be repaid from 2014 and 2015 capital approvals that are yet to be agreed in detail by the States.

Use of receipts from Asset disposals

The States has a significant asset portfolio with a total value of £2.9 billion at the end of 2011. However, opportunities to rationalise these assets have been considered and the disposal receipts for immediate opportunities have already been included in the Medium Term Financial Plan and the Long Term Capital Plan.

2012 Underspend Projections

Ministers will be aware that the Quarter 3 monitoring report for revenue expenditure shows  that  departments  are  forecasting  an  underspend  position  of  £25.9 million. Departments have submitted carry forward requests for the majority of these balances with the remainder being considered as an appropriate allocation to contingencies in

2013. Departments have also planned underspends by deferring projects and to meet CSR targets.

Additional returns from Strategic Investments

The States is the majority shareholder in a number of organisations and receives annual  dividend  income  as  a  result.  The  States  is  in  a  position  to  increase  the requirement for dividends or to request a special return recognising any cash balances these  organisations  may  hold.  However,  the  States  must  recognise  that  these organisations are run independently by appointed Boards with agreed business plans. For example, the States of Jersey Development Company holds a cash balance of circa £6 million but is not in a position to return this presently in the form of increased dividends because the cash is needed to bring forward investment in sites such as the old JCG.

Stabilisation Fund

There is a defined purpose for the use of the Stabilisation Fund. Any proposals to use the Stabilisation Reserve to fund Plémont or any other such investment would require both an expenditure approval and a change of purpose for the Fund. In any event, there is only £1 million available.

 _____________________________________________________________________ Re-issue Note

This comment has been re-issued as changes have been made to the section "Options and Recommendations for Funding" on page 3.