Hammersmith & Fulham Council is set to raise £650m to acquire the beleaguered Earls Court development.
The purchase would be the largest local authority real estate acquisition to date.
The council will look to purchase the 20 acres of land, initially through negotiations with Earls Court Partnership, a joint venture between Capital & Counties and Transport for London, and move on to a compulsory purchase order if required.
The cabinet has approved a programme which will see it masterplan the development and launch a search for a private sector partner to finance it, as well as explore alternative funding options.
It will aim to launch negotiations with the jv in February, and will initiate CPO preparations in June, to be issued in September next year. This timeline anticipates vacant possession at the end of 2021.
Recommendations from Avison Young estimate the acquisition will cost around £650m, based on the most recent Earls Court Partnership accounts, with a further £1.5bn required to fund development. The £650m is based on market value estimation of the two plots at £617m and £33m in stamp duty land tax and professional fees.
Council leader Stephen Cowan said in a social media post: “My fellow Labour councillors and I [have] voted to undertake the biggest compulsory purchase order by any council in modern history.
“The scheme is dead and Capco admit it’s ‘undeliverable’… after five years of dealing with them, it’s hard to believe a word they say. So when markets fail, governments step in. That’s what Hammersmith & Fulham Labour are doing.”
An Earls Court Partnership spokesman said: “Earls Court Partnership Limited is advised that [London Borough of Hammersmith & Fulham] has not demonstrated that it has a credible position in relation to CPO, a process which is only likely to slow down the Earls Court scheme and delay the range of public benefits that could arise from the opportunity area.”
‘Significant upfront cost’
Avison Young stressed in its recommendations the “significant upfront cost to the council”, which will seek to finance the land acquisition through prudential borrowing, public sector funding, bond financing and investment partner funding.
Hammersmith & Fulham Council cabinet documents state: “This project has completely stalled over the last six years, with only demolition of the exhibition centres taking place.
“The council’s aim is to unblock the stalemate, to accelerate the delivery of the homes and increase the number of genuinely affordable homes in the borough across the masterplan area.”
Capco received consent for its £12bn masterplan in 2013, seeking to deliver 7,500 homes alongside improvements to transport, parks and amenities. However, it has struggled to unlock the site, with values plummeting from £1.27bn in 2015 to £617m this year.
In February, Hammersmith & Fulham Council announced plans to CPO the former exhibition jv land and the Lillie Bridge Depot site, which is owned by TfL.
The council has opted not to CPO TfL’s 20-acre operational depot site, instead progressing discussions with the transport body over how it can aid delivery. The council will seek legal advice regarding the acquisition of land in the Royal Borough of Kensington and Chelsea.
Potential demerger
The news comes as major players in the private sector vie for Capco’s 63% stake in the jv. The developer has been approached by CK Asset Holdings, Canary Wharf Group and Berkeley Group.
Earlier this month it said it had entered into due diligence and commercial terms with buyers deemed acceptable by stakeholders. If a sale does not progress “satisfactorily”, it will publish demerger plans at the end of the month.
According to Radius Data Exchange, the largest local authority real estate deal to date has been Spelthorne Council’s £360m Sunbury-on-Thames business park buy from BP in 2016. Local authorities have spent some £6.5bn on commercial real estate since 2013.
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