Examination of Witnesses (Questions 20-39)
MR TOM
BLOXHAM, MR
DAVID HODGSON
AND MR
MEL BURRELL
TUESDAY 26 FEBRUARY 2002
Chris Grayling
20. Can I just ask a point of clarification
there? You talked about the gap issue in the centre of Barnsley.
(Mr Hodgson) Yes.
21. Let us suppose that you transposed that
similar property to a greenfield site outside Barnsley, somewhere
in that area. Can you give us an idea of the difference that you
feel would exist between the inner city location and the greenfield
location?
(Mr Hodgson) In this specific instance it is not actually
site contamination problems or anything like that. It is not costs
of development as such that are causing the problem. It is the
value element of it in that Barnsley has not got an office market
to speak of.
22. But there is not a difference in value?
You are obviously talking about a significant value issue in the
city centre. If you migrate away from the city centre out into
greenfield areas closer to new developments, for example, do you
find that the value issue becomes less of a problem?
(Mr Hodgson) The only other option, talking about
Barnsley, would be to move into an enterprise zone where values
have increased to a point where there are financial benefits there
to enable that development to happen.
Christine Russell
23. Tom, I am particularly thinking of your
schemes that I am familiar with in Manchester. You have set a
very high design standard which has, if you like, set the standard
for surrounding regeneration plots. How fearful are you that the
new funding regime may result in the design standards falling,
cutting corners?
(Mr Bloxham) There was no market in the city centre
of Manchester or many other cities and we had to do something
to intervene, to change that. What we did was, with some help
from English Partnerships was to invest in good design, that made
the buildings of such quality that people who would not have thought
of living in the city centre before came in and saw great buildings
and wanted to move in there. What you find now is that from relatively
small amounts of public sector investment it changed people's
perceptions because of the design of the city centre and now many
more developers, ourselves and others, are investing in the city
centre and the market is working fine. There is no need for investment.
The problem now is that in the doughnut around the city centre
and the other satellite towns the market has still failed and
absolutely you need some investment, you need to get the design
quality right. One of the other things that is happening in the
whole process is that as they have become more and more sophisticated
in the appraisal process, they are always trying to cut down the
gap that is needed, and one way to do that is by using quantity
surveyors to cut down the cost of it, and the first thing that
usually goes is the extra bits of design, so yes, I think it is
a real issue.
Mrs Ellman
24. How easy has it been to find out about the
new replacement regeneration schemes?
(Mr Bloxham) Incredibly difficult. There is no public
information. I am still not totally clear about what it is. We
have got people working on this virtually full time. We have got
the resources now to be able to access these things and the contacts
to do it. When I started up ten years ago everybody would be in
the same situation. We would have absolutely no chance, I do not
think, we would be able to start up and do what we did if we were
a young company today.
25. Where do you go to find out about the schemes?
Is any authority committed to helping you?
(Mr Bloxham) We go and ask whoever we can, for example,
the RDAs. There is no central point of information. The DTLR are
on a website. It is easier now with the web, I think. It is an
issue, I think, getting that information across to people, particularly
people who may not be public developers but good business people
with good ideas to invest in the city centre and are unable to
do so.
(Mr Hodgson) I have been to talks by Yorkshire Forward
that have said, "We are not offering that funding, full stop.
We are concentrating on joint ventures", so the information
is just not there to be had out of, for example, Yorkshire Forward.
I just reiterate what Tom says. There is no central point of contact,
there is no branded fund. PIP was branded. Wherever you went,
whichever region you went to, you had the standard application
forms and the standard information pack which, once you had done
one, the first one might be a struggle but you could see your
way through it. As Tom says, that is just not the case any more.
(Mr Burrell) I can only agree with that point, at
least in Yorkshire. It is quite mystifying as to how to access
such funds. There is, it appears, a desire to do either more direct
development by Yorkshire Forward or joint ventures, but then you
have to discover where the joint venture is. As I said in my statement,
the plethora of plans that are being prepared by Yorkshire Forward
and how to get to the one that is actually an implementable one,
one that we as developers could relate to, is an extremely difficult
process. As I said, as a company at the present time I am concentrating
my efforts simply on Objective 1 with a very specific team that
has been set up to manage Objective 1.
26. Have any of you progressed any schemes using
the new funding regimes?
(Mr Burrell) Yes. We have been successful. We have
received the first major Objective 1 award in South Yorkshire.
27. That is an Objective 1 scheme?
(Mr Burrell) That is Objective 1.
28. Would you say that private developers are
closed in principle to RDAs conducting direct development themselves?
Do you see it as against the interests of the private sector?
(Mr Hodgson) In certain situations it can work. Take,
for example, an area called Grimethorpe which, if you think Barnsley
is bad, times it by ten in terms of industrial values. There Yorkshire
Forward have reclaimed a large area of the land and are undertaking
direct development themselves to speculatively build the first
units there. That is what that area needs because no private sector
developer is going to take that risk of building speculatively
in that area. Yorkshire Forward can afford to. In that instance
I think it has got a use there. The only danger which starts to
arise is maybe when they consider sites that the private sector
may consider with some gap funding.
(Mr Burrell) I would go a stage further. In our business,
which concentrates on the regeneration of brownfield sites and
their subsequent development, one of our principal competitors
is Yorkshire Forward. We find ourselves bidding against them on
occasion to acquire property. Again in my statement I have cited
an example of a site on the boundary between Sheffield and Rotherham
which was an ex-colliery site which we proposed—as did others—to
develop—without, I stress, public funds—because we
felt we could make it work. That was three or four years ago.
That site is still sitting vacant, still sitting derelict. I do
not know the reasons for that, nor do the other companies, but
direct development is something that we can on occasion fund but
it may be acting against regeneration.
29. Is this a matter of a conflict of interest?
Is it really wrong for the public sector through the RDAs to invest
directly in profitable development?
(Mr Bloxham) I think they should only do development
as a last resort if the private sector are not able to come in
there. I think there is a conflict and a very deep conflict in
that Yorkshire Forward on the one hand see themselves as developers
trying to make money. On the other hand, they are helping regeneration
where the market has failed. Do they then decide to put their
investment in the safe bet where the private sector go as well,
in established locations, or do they put their money in the risky
bet where it is very deprived and they may lose all their money
but it may help with regeneration? I think that is a very difficult
equation to answer.
30. How far would you say the knowledge and
expertise of private property developers is brought into developing
the regional economic strategies or influencing an individual
decision of the RDA?
(Mr Burrell) In my experience we have on very few
occasions been asked for our views. There are a considerable number
of people within Yorkshire Forward who are, I suppose, just as
able as we are to understand the economics of property development,
but there is not a readily available two-way flow of information
between ourselves and the private sector and the principles within
Yorkshire Forward, at least in my experience.
(Mr Bloxham) There is so much strategy about, and
it was interesting to see that nine of the 11 RDAs all have an
objective to get their GDP above the average. There is some interesting
maths there. For my money I would like to see a bit more direct
action on sorting out the deprivation and a bit less money spent
on consultants and strategies.
Mrs Ellman: Would any of you like to give any
assessment of the effectiveness of the RDA in your area?
Chairman
31. It is particularly easy to answer when you
have got to go and ask them for money. Who is going to give us
a glowing account of the success of an RDA?
(Mr Bloxham) We work with four different RDAs. All
of them are absolutely genuine in their desire to see regeneration.
The issue with them is that they have such a wide scope of things
to deliver, which is still being evolved, about economic development
as well as regeneration, that they are in a very different position
from the old English Partnerships were where their strategy and
their objective were very clearly laid down. What they basically
had to do was sort out the land. Different RDAs take different
views of how important sorting out that land is. There has been
a real issue as well on the actual personnel, the changes in the
structure of it and the changes in personnel. There are a lot
of people who had very specialist skills of delivering regeneration
who have left and gone to different places.
32. Could you tell us then which is the best
RDA in your experience?
(Mr Bloxham) No.
Ms King
33. The inability to get funds for mixed use
and residential schemes, can you tell us how big a barrier this
is to urban renaissance?
(Mr Bloxham) On the notes I have seen it is said you
cannot get gap funding if something has got more than 50 per cent
residential in it, and probably the majority of schemes that we
have done in the past have had more than 50 per cent residential
in there. I am an absolute fan of mixed use. They always say they
do not want mixed use but quite often you get one building which
is residential next to one building which is offices. It is still
mixed use. In order to deliver the regeneration you have to be
able to support residential schemes as well as commercial schemes.
I would say it is fundamental.
(Mr Hodgson) Moving away from the urban centre, a
very big issue now for industrial occupiers is the demographics
of a region. It is having the workforce there, it is having the
workforce that will stay with that company long term. They are
not so interested now in getting the big regional selective assistance
grant for their business, the one-off slug if, ten years down
the line, they have not got the staff to make the scheme work.
To attract a big company like that into a region you need good
quality housing in that region to attract the workers. It is all
circular.
34. Can you explain to us why it is important
that finance costs should be included as an eligible cost of a
development in appraisal?
(Mr Bloxham) Because it is a cost that we all have
to pay. It is no different from paying the builders to paying
the bank. You have to borrow the money. All legitimate costs should
be included. Otherwise it makes a mockery of the appraisal.
35. So no-one can understand it?
(Mr Burrell) In the Objective 1 appraisal process
finance costs were excluded as well. The mathematics in it endeavour
to address that by saying that you will be making a profit halfway
through the scheme and that will accommodate the loss of finance
cost, but at the end of the day it is pretty debatable.
Mr Betts
36. Briefly on the issue of housing developments
and mixed developments, you were saying a few minutes ago that
effectively for Yorkshire Forward it was the Objective 1 area
which was the only place where anything was happening in terms
of the new regime. Is it also true that in there it appears that
with this change of grant arrangement the housing schemes have
virtually stopped being in the Objective 1 area?
(Mr Burrell) We are not involved in any direct housing
development and the Objective 1 projects that we are involved
in do not have a housing component in them.
(Mr Hodgson) I would say the same except that I am
not aware of any schemes progressing in the region.
Ms King
37. David, can I just ask you about the advantages
of loan and rent guarantee type schemes? You described them in
your memorandum. How would they be of benefit to that leisure
scheme that you describe in your memorandum?
(Mr Hodgson) By definition an Objective 1 area is
a poor market. We have a leisure scheme ongoing in the centre
of Barnsley again which is a nine-screen cinema, three restaurants,
the standard sort of thing you see in every city centre or just
out of the city centre that works everywhere else, but the values
have diminished to such an extent that it does not work financially
in Barnsley. The other problem that we have is that we can attract
tenants to it but the tenants are generally of a weaker covenant
so we cannot attract the likes of Warner Brothers cinemas, that
kind of covenant. You are attracting the lower end of the market.
The issue then is that as a development trader we need to sell
on the investment and to sell on the investment that we have put
together you are selling on an income stream. The covenant strength,
the financial strength, of the tenants that we are attracting
to this scheme are not of sufficient quality to enable us to realise
the investment value which exceeds the cost and so we are in a
cost gap situation again. As I say, we have got the tenants there
but to sell the investment, if we could have something from the
RDAs that guaranteed their rent for, say, five years or three
y ears, whatever, that would go a long way to giving an investor
the confidence to buy the scheme off us.
Chairman
38. How far would a leisure scheme like that
really lift Barnsley? Is it worth doing?
(Mr Hodgson) At the moment the only other option is
to get into your car, drive on to the M1, drive two or three junctions
down the M1 and into the Don Valley in Sheffield which causes
some problems in practical terms of people travelling out of the
town. Leisure spending is such a big spend these days that that
is the investment that is being taken out of the town. If you
can get this scheme away you are attracting other things as well.
39. So it would be some jobs for people in Barnsley
working in it and then it would be people spilling out from the
leisure into the rest of the town centre ?
(Mr Hodgson) Yes. It keeps people in the town centre
so they are more likely to shop there than go to the cinema. At
the moment they go to Meadowhall and then they go down to the
Don Valley.
(Mr Bloxham) I think the issue here though as to whether
or not a particular scheme is worth supporting is in some ways
irrelevant because different people take different views of whether
it is worth supporting. Because of legislation, even if they think
it is worth supporting, the mechanism is not there to support
it.
Chairman: As far as this Committee is concerned
one of our major concerns is the whole question of urban regeneration.
What we have been told, if I am right, is that really this is
an opportunity to sow a seed in Barnsley which will have a knock-on
effect in terms of regenerating the old part of Barnsley as opposed
to moving out into greenfield or distant sites from the town centre.
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