MF Strawson revealed building the Travelodge-led scheme in Newark would result in a financial deficit of nearly £638,300
DEVELOPER MF Strawson revealed building the Travelodge-led scheme in Newark would result in a financial deficit of £638,299 for the company, newly-disclosed papers reveal.
The council’s planning committee had agreed that the listed cottages, on the former Robin Hood Hotel site on Lombard Street, could be demolished, but that decision was called in by the secretary-of-state and subsequently withdrawn.
A revised scheme retaining the listed facade was approved by the committee in July 2018.
An exempt report to the policy and finance committee of September of last year said: “The facade retention scheme was more expensive than demolition of the listed properties and a new build and MF Strawson Ltd have provided a financial appraisal which shows a financial development deficit in respect of the project of £638,299.
“As a consequence of the financial deficit, which would be incurred in building out the project, MF Strawson have indicated that they may not be in a position to proceed given the significant losses (of just under £4m) which they have already incurred on the Potterdyke redevelopment scheme.”
Strawsons bought a former carpark, Potterdyke, from the council and a development that includes Asda, retail units, a new bus station and a relocated doctors’ surgery was built.
The Robin Hood was supposed to be redeveloped and restored as part of that approval.
MF Strawson approached the council with the following options.
l Capital payment by the council — MF Strawson asked the council to consider making a substantial capital payment, of around £500,000, which would go some way to plugging the negative development margin, which could be justified by the economic benefits that the development would bring.
However, there were concerns that such a payment would breach state aid rules. Also, the council was concerned it would derive no benefit from its capital investment if this option was pursued.
l The report to sign a 25-year index-linked lease of the three retail units at £100,000 per annum. Effectively, the council would take a head lease of the three retail units for a 25-year term to a rental of £100,000 per annum.
This would then enable MF Strawson to sell on the development on completion with the benefit of the council’s covenant. Together with the Travelodge lease this would create an investment product that would be attractive in the open market and enable MF Strawson to sell the completed development at a yield profile which would enable them to break even on that phase.
The council said there would clearly be significant risk to it in the event of the retail units remaining empty.
l MF Strawson to transfer the site to the council for £1 with an obligation on the council to build out the Travelodge consented scheme.
The council said: “Issues which would need to be considered would include whether Travelodge’s commitment to enter into a 25-year lease would extend to the council and whether MF Strawson would require require some payment for copyright in architectural drawings, etc, in respect of the scheme.
“The council has no commercial expertise in this area and would need find a development partner by which Travelodge’s commitment may be lost. It is not therefore considered that this is a viable or realistic option.”
In light of these suggestions, the council elected on a fourth option — the joint venture where both parties commit to fund the development equally.
The development appraisal produced by Strawsons, showed a 6.9% return, which aligns with the council’s investment strategy.
It was suggested the hotel could generate a stronger interest in the retail units and the report offers up potential uses of a gym or café and restaurant that would serve the Travelodge.
At last week’s meeting of policy and finance, Labour Group leader Paul Peacock said: “I’m not happy to support £3m into the capital project. Not enough has been done to reduce the financial risk of this project.
“Our view has not changed and will not change on this project.”
Committee chairman David Lloyd said: “One was to buy it for a quid, but English Heritage have been very clear on the extent that needs to be retained.”
He said the council would not have received the plans, architectural drawings, or chartered surveyor’s reports.
“It would have been a significant spend,” he said.
Mr Lloyd said Travelodge had set a deadline and were an “intrinsic part of the scheme to bring forward a massive part of the financial return.”
He said the option of giving Strawsons a grant could have been illegal form of state aid.
“The Heritage Lottery might have, but didn’t,” he said, of the giving of money.
Mr Lloyd said professional officers, not elected members had said there must be another way after finding fault with all three options.
“This is a viable purposeful investment Newark and Sherwood District Council has made to remove this rancid eyesore which has blighted that part of town for a long, long time,” he said.
Mr Lloyd said the move would bring significant hotel bed space to Newark.
Mr Lloyd denied accusations from Mr Peacock that council tax had been put at risk, saying the agreement had been drawn up so any risk lay with the developer.
Strawsons will be responsible for overseeing the development with open-book accounting to ensure transparency.
The report reveals the council’s contribution is capped to guard and against spiralling costs.
The intention is that on completion of the works, the Travelodge element will be sold to a third party, delivering a capital receipt for both the council and Strawsons. A pensions company is said to be interested.
Selling to a third party, the report said, would enable the council to recoup up to two-thirds of its capital outlay in a relatively short space of time.
The council’s former deputy chief executive, Kirsty Cole, recommended to committee that council agree in principle to the joint venture with the reasoning: “To bring forward the scheme for redevelopment of the former Robin Hood Hotel, to accelerate the timetable for its completion and to deliver the consequential economic benefits to the town and the wider community.”
the wider community."