Agenda item

From the Cabinet, 15 November 2022

Further to Minute 53 or the Cabinet considered a report of the Director of Property Services and Development which indicated that the City Centre South scheme would deliver transformational improvements to Coventry City Centre through new homes, jobs, commercial and leisure opportunities and high-quality public spaces. The report sought formal approval to the next stage of the project (following the previous Council approval in January 2022 to proceed with the making of the Compulsory Purchase Order).

A corresponding private report detailing confidential financial matters was also submitted for consideration (Minute 91 below refers).

The Council’s development partner, Shearer Property Regen Ltd (SPRL), had appointed Hill Holdings Limited as the funding partner for the Scheme under the terms of the Development Agreement entered into between the Council, SPRL and Shearer Property Group (SPG) in 2019. The Council were working with the developer to optimise the Scheme and an application to make a number of refinements to the Outline Planning Permission for the Scheme would be submitted to the Local Planning Authority shortly.

The parties were also working together to agree variations to the Development Agreement to reflect the Scheme refinements and the commercial terms of both the Council and development partner. Whilst deliverability was being optimised through design and contractual changes, where a viability gap remained the developer had a right under the ‘Development Agreement’ to make a request for the Council to bridge that financial gap in order to make the scheme financially viable. The Council had no obligation to agree to such a request; however, it was recommended that the Council resolves to provide financial support to the project in order to secure delivery.

The report, therefore, sought formal approval to utilise funding awarded to the Council by the West Midlands Combined Authority (WMCA), as well as some additional Council resources, to provide additional funding support for the Scheme and to make changes to the Development Agreement to enable the delivery of the Council’s key regeneration priority for the city, delivering important new homes, hundreds of new jobs and a step change in the quality of the city centre.

The Scheme would deliver a range of transformational benefits for the people of Coventry. The proposed refinements to the Scheme will lead to up to 1,500 new homes (an increase from 1,300 new homes), new retail, employment, health care and leisure space resulting in a new sustainable city centre community whilst still retaining a mixed-use approach. As well as these quantitative benefits, the delivery of the Scheme would realise a significant number of qualitative benefits that will benefit local residents and businesses, which include:

§  An increased diversity in city centre uses, through the delivery of  residential units (including different tenures), mixed retail and leisure spaces and new public realm provisions.

§  An active, attractive and inclusive evening economy, as a result of the provision of a more varied commercial offer which will lead to a more socially inclusive place.

§  Improved attractiveness of the city centre as a business location, through attraction of talent to the area and better linkages to the city’s existing business district.

§  Improved connectivity across the city centre through the proposed public realm works and new pedestrian and cycle linkages. 

§  A more active and varied cultural offer, through the diverse range of leisure and retail uses proposed under the new scheme

§  Improved perception of the city centre, through its transformation into an exciting and thriving location in which to live and work. This will not only encourage local visitors but will also increase tourism.

§  Changed perception of Coventry as a place to live, work, visit and study due to the vibrant and successful mixed-use environment.

§  Improved local and regional economic and commercial regeneration by the Scheme acting as a stimulus for further private sector investment due to an enhanced economic sentiment around the city centre.

As has been the case since the Scheme’s inception, bringing forward a complex city centre regeneration scheme like CCS and delivering the range of benefits outlined above has required financial viability challenges to be overcome. The £98.8m WMCA grant funding acknowledged the reality of the “market failure” in this part of Coventry and the economics associated with bringing forward a city centre scheme of this nature. This had been reinforced through the recent WMCA Investment Board Decisions to both continue to allow the full utilisation of the grant funding and to reprofile some elements to support Scheme cashflow.

Additionally, the Outline Planning Permission for the Scheme acknowledged that the delivery of affordable housing in that Scheme was not financially viable and no affordable housing was proposed at that stage. However, CCC, WMCA and SPRL all wished to see a refined Scheme including affordable housing to ensure a diverse and vibrant community and to offer opportunities to Coventry residents seeking an affordable home in the city centre. The refined Scheme was therefore looking to include up to 20% affordable housing, subject to viability re-appraisal.

A financial re-appraisal of the refined Scheme indicated that even after a full utilisation of those elements of the WMCA grant available to the developer a viability gap remains. Accordingly, substantially in accordance with the provisions of the Development Agreement (DA), SPRL had requested that a contribution of up to £32.75m of funding was committed by the Council to help facilitate delivery of the Scheme. The proposed Council funding of the Scheme included utilisation of £28.7m of the WMCA grant which is awarded to the Council as compensation for its loss of existing land interests in the CCS area and which the Council was willing to see recycled into supporting Scheme delivery.

Alongside the Council’s advisers, Deloitte (Commercial Advisors) and WTP (Cost Consultants), the Council had been undertaking due diligence on the refined Scheme to analyse and refine the costs, values and target return adopted within the appraisal and the Council is satisfied that SPRL’s financial appraisal as refined by this process is robust and satisfactory. Furthermore, the Council’s commercial advisors Deloitte have confirmed that an additional funding contribution from the Council to close the Viability Gap is justified and required in order to deliver the Scheme.

As the Council entered the next stage of the project, there was a need to continue working with advisors to have support at the CPO inquiry, due to take place in January 2023, and to provide the Council with the legal and commercial expertise needed to deliver the project.

RESOLVED that the City Council approves the use of up to £32.75m to support the delivery of the Scheme and £1.2m to fund Project Support and Monitoring Costs (£28.7m of which is to be funded from the West Midlands Combined Authority City Centre South grant and £5.25m from Capital receipts to provide the remaining gap funding for the Scheme and Scheme Project Support and Monitoring Costs).