Agenda item

To consider Report No. RP2103 (copy attached), which sets out the outcomes and recommendations from the due diligence work undertaken in relation to the redevelopment of Union Street, Aldershot and seeks approval to move to the next stage of project delivery.

The Cabinet considered Report No. RP2103, which set out the outcomes and recommendations from the due diligence work undertaken in relation to the delivery options and funding routes for the Council’s plans to redevelop land at Union Street, Aldershot and sought approval to move to the next stage of project delivery.

The Report and appendices set out the background in relation to the site and the significant work and due diligence undertaken to date and options for the way forward. Planning permission had been secured in 2020 for 100 residential units (20% affordable), 16 commercial units and 128 rooms of student accommodation, originally intended for the University of the Creative Arts (UCA). Members were informed of the work of the cross-party Cabinet working group and its involvement in the due diligence process. It was confirmed that the Group was supportive of the recommendations to move to the final stage of design and preliminary site works.

In terms of options for the ongoing ownership of the scheme, following the UCA withdrawing from lease negotiations in relation to the 128 bed spaces within the consented scheme, the Council had been undertaking soft market testing with student accommodation operators and had commissioned external consultants to understand the scope and feasibility for considering an alternative approach to delivery, focused on direct lets to the student market or on nominations agreements with higher education institutions.

CRM Students, a leading provider of student accommodation across the country, had provided the Council with an indicative management proposal for the scheme. This had allowed for a range of sensitivities to be tested in relation to occupancy levels and rental income per room. This exercise had established that the Council had the potential to improve on the terms that had been agreed in principle with the UCA and to generate a better yearly income to underpin the delivery of the wider scheme. 

Avison Young had been commissioned by the Council and had undertaken a comprehensive review of the local student accommodation market. They had then sense-checked the approved scheme in terms of likelihood of student uptake. This had endorsed the proposal provided by CRM in terms of price points and management costs associated with a direct let approach. Avison Young had also engaged with local higher education providers to gauge the appetite for purpose-built student accommodation and the feedback had been positive, with interest from the UCA alongside other institutions based within the Guildford area. Further conversations were also planned with Farnborough College of Technology to confirm whether they would also have an interest in utilising some of the student bed spaces on offer.

Avison Young had noted in their draft report that the proposed scheme had been well designed and spacious and would appeal to both institutions and the student market. They had projected a 10-year cashflow net income based on achieving an occupancy level of 97%, with rents pitched between £165 to £175 per week, that compared favourably to the net income position that had been progressed with the UCA by way of a lease.

Members were informed that the Council’s risk profile would be significantly altered in light of the fact that, at the present time, there was no confirmation of uptake of the units and such an undertaking would not be established until approximately one year prior to practical completion. The most favourable outcome would be for an institution such as UCA to enter into a nominations agreement, underwriting the rent for the entirety of the bed space offer for a period of five or ten years, which was an industry standard. The UCA were keen to explore this principle with the Council but this would not happen prior to the commencement of the build.

On the basis of the external advice received, it was felt that the current and forecasted demand for student accommodation would enable the Cabinet to proceed with the next stage of the scheme, whilst exploring further different delivery routes for the purpose built student accommodation element of the Union Street scheme. This approach would have the potential to improve the overall viability of the scheme, as long as the risks were managed effectively.

Members discussed the options and were supportive of the suggested approach, as set out in the Report.

The Cabinet RESOLVED that

i)             the  outcomes of the due diligence process, as set out in Report No. RP2103 and in the Reports by Grant Thornton UK LLP and Lambert Smith Hampton Investment Management (LSHIM), be noted;

ii)            the risks identified in Exempt Appendices E and L and the recommendations and next steps proposed by LSHIM and officers in order to progress the scheme, as set out in Section 5 of the Report, be noted;

iii)           the Council’s progression to the next stage of development, as set out in Sections 6 and 7 of the Report, be approved, on the basis of:

a)            the Council undertaking the development of the scheme;

b)            on completion, the Council retaining the student accommodation and commercial units and disposing of the affordable units to a Registered Provider (RP);

c)            the Board of Rushmoor Homes Limited (RHLtd) being offered the option to acquire the remaining residential units;

iv)          the appointment of Hill Partnerships Limited to carry out the technical design and site preliminary works, as set out in Section 6 of the Report, be approved, subject to a final decision to proceed with the scheme by the Council;

v)            the utilisation of up to £2.2 million of Housing Infrastructure Fund grant funding at risk, as set out in Section 6 of the Report, to cover the costs associated with RIBA Stage 4: Technical Design and preliminary works relating to the consented scheme in order to minimise delay in the delivery of the scheme be approved and the potential for a further bid to Homes England for delivery and capacity funding be noted;

vi)          a variation (or other route) to the existing demolition contract, as set out in Section 7 of the Report, to allow for additional site preparatory works to be undertaken, be approved; and

vii)         the next steps and that a further report would be presented to the Cabinet in due course to enable a final decision to proceed with the scheme, with a recommendation to the Council to approve the further capital expenditure required to deliver the Union Street development, be noted.