Enabling Development: When does it Enable and when does it Disable a Project?
The developers claim that “enabling development” is the answer to maintaining the existing Grade A listed buildings. The Friends have examined the data and not only believe that this is a specious argument, but that enabling new development on the site would make the project much higher-risk and increase the chances of the site being sold on or not being completed quickly and the listed buildings degenerating.
Many people were scared at the exhibitions by photographs of graffitied old buildings falling into ruin.
But giving planning permission for excessive amounts of new-build development on the site will not make it less likely that the buildings fall into neglect – in fact it increases this risk.
Companies get into financial problems by borrowing too much and not having enough income and assets to back up the borrowing.
If the developers get planning permission for this amount of new development it will seriously increase the risk of the development failing. It will:
- make for a much larger development during a recession
- be more complicated to fund – therefore add risk
- be a distraction and remove focus from the listed buildings
- increase the motivation for Mountgrange not to develop the listed buildings but to do the new-build only or sell the site on at a profit
But, some might say, Mountgrange is a commercial organisation. They need to make a return on their investment.
Yes, they do. They need to make a 20 % return on their investment. So the question is:
Is the Conversion of Listed Buildings Profitable on its own?
The simple answer is: YES.
The Craighouse site was bought under-value for £10m by Craighouse Ltd.
We have been given an estimate of the costs to restore the building by an expert close to the planning process of: £5m for New Craig, and £1m for each other building. This comes to about £10m total [Update: this figure has caused some debate. Later on we were given £125/sqft by Sundial at the meeting we had with them, which works out at about£20m for the conversion, but that still leaves a profit, so Sundial disputed it again and said “significantly over twice that”, but that still leaves a profit, so then they refused to supply further figures for conversion of the listed buildings alone]. The developers said they would sell 90 flats at an average of £400,000 each. [This also led to a dispute, with the price quoted in the application now being: £576k for 64 units].
It is reasonable to say that the developers will spend a total of £20m on acquisition, conversion and renovation, and sell for £36m. That’s provides a profit of approx £16m, which is far in excess of the Mountgrange fund’s targets of 20% IRR, if they can complete the development in 3 years without borrowing.
If they can borrow (which Mountgrange claim they can) then they can hit their IRR target by developing over 4-5 years, depending on the bank interest they get.
This is a broad estimate and there are, of course, risks and further detail that need to be examined and we would welcome further detail from the developer and other experts if they care to supply this properly and transparently.
But, in a nutshell this means:
If the development is kept reasonable (for example, they develop the listed buildings only, with no new-build) and is completed quickly (better for the listed buildings, for the success of the development and for local residents) then it will return a good profit for Mountgrange.
The more new-build they go for, and the more the council tries to exploit the site through Section 75 – the more risk there is that the development will fail, and the listed buildings degenerate.
Mountgrange bought this site undervalue. They will make a profit either way. It is imperative that, if we want to save the historic buildings, that they convert them quickly and simply and that this development is kept reasonable and low-risk.
The only way to do that is to force the developers to turn the project round quickly, with a minimum of borrowing – this means keeping new-build to a minimum and concentrating on converting the listed buildings and making sure that they are developed quickly (and forcing the developer to make the reasonable profit provided by developing them, not taking the easier route and profiting from new-build or selling the land on with permissions attached).
This may not be sexy, but it is good common-sense and is the best way of ensuring a practical, low-risk, achievable and sustainable development that works.
This is perfectly possible – and perfectly profitable – if our politicians and planners are sensible and keep their heads.