Magnet site valuation plummets by millions
Council documents reveal massive drop in sale price for key development site
The land value for the Magnet Leisure Centre development site has plummeted by millions of pounds in the space of less than two years, writes Kieran Bell.
Council documents, seen by the Advertiser, recommended last month that the council agrees to sell the St Cloud Way site to Countryside Properties for a minimum land value of £15.75million – nearly £11million less than the £26.68million the land was valued at in December 2020.
Countryside’s major plans to overhaul the former leisure centre and Ten-pin Bowling site into 434 new homes were approved at a meeting in December last year.
The project was expected to generate a significant windfall for the council, but officers have reported that the ‘current economic climate, impacts of COVID-19, post-Brexit supply chain disruption and inflationary pressures mean that the cost of building material and labour has spiralled’.
These increasing costs are ‘directly eroding’ the land value.
The documents were shared with councillors during Part 2 of a cabinet meeting – from which the press and members of the public are excluded – at the end of August.
A development agreement was entered into by Countryside and the Royal Borough, which owns the freehold of the land, in December 2020.
The agreement’s financial model provided a land valuation for the proposed development of £26.68million.
To enable Countryside to commence development, the agreement required an updated financial appraisal be provided to the council, including a full update on construction costs and the key return for the project.
Documents reveal that Countryside’s appraisal produced a revised land value for St Cloud Way of £15.75million.
As part of this process, the borough appointed an independent project surveyor to review the appraisal, which concluded that, in the current market, ‘best value has been achieved’.
“The significant change in the land value is due to extraordinary inflationary pressure on construction cost, driven by the increased price of energy, raw materials, and labour,” the report states.
“The significant increase in the construction cost is the sole contributory factor to the reduction of the land value.”
The report also states that Countryside has advised that failure to commence on site by mid-September will mean the development will need to be constructed in compliance with new building regulations regarding energy efficiency and power supply.
The developer says this would add ‘a further £4,340,000 to £6,510,000’ to the build cost, which the council says ‘will have a further deflationary effect on the residual land value.’
Work was meant to start at the St Cloud Way site earlier this year but, last month, the council leader told the Advertiser he was confident the development would start in October.
Back in 2017, then cabinet member for finance, MJ Saunders, told a meeting that he expected the project would generate ‘up to £38million’ in capital receipts – covering the cost of the state-of-the-art Braywick Leisure Centre development which replaced the Magnet.
The Royal Borough said it cannot comment on commercially confidential matters. Countryside was also contacted for comment.