...so we bid for King Alfred? But what if we win...?
— 21 Sep 2019, 11:05 by Hugh Dennis
Residents from Brighton and Hove have been patient. There have been several attempts to redevelop the King Alfred Leisure Centre in Hove over recent decades – without success. It is an unedifying 1930s sports centre crying out for improvement, not least, so that local people can benefit from leisure facilities to rival those found in nearby towns. In addition, this particular site also presents an exceptional opportunity to address the chronic housing shortage in the city.
Part of the problem to date has been that proposals seem to focus on a building. We refer to this area as the King Alfred Quarter, however, because we recognise its size and importance. This is not about constructing a building; it’s about creating a community. The project requires vision to deliver decent, affordable homes and an outstanding leisure centre. Fresh thinking is needed.
As the local newspaper, The Argus, correctly pointed out last year, the sums on this site have not added up for the last 20 years; a for-private-profit developer simply cannot deliver five or six hundred flats AND a leisure centre on the site. Involve major players and you run the risk that pressure mounts to add yet hundreds more flats. Thankfully, such oversized solutions have been ruled out by wise heads in the planning department and by local residents’ groups keen to regenerate Hove seafront sensitively and sustainably.
We have always believed that a for-private-profit developer would not be able to make the surplus they needed on this project. We imagined that this would become apparent in a year or two, indeed we sought counsel from one of the UK's leading compulsory purchase QC's to establish our options before the sudden withdrawal of Crest Nicholson prompted us to step up now. We will now approach the Starr Trust and the Council to find out if they have considered a not-for-profit solution.
We think it's time for a new approach; the site should be re-developed by a not-for-profit developer motivated by fixing the housing crisis rather than draining the project for private profit. If we take a theoretical example where the whole project is worth £250m when completed, a for-private-profit developer will expect to make at least 20% profit (£50m) for their involvement, and on risky sites such as this, they may want 25% or even 30%. This sounds like easy money, but it's not as simple as that...
Before the project is completed it has no value, indeed during construction it is a liability because it has an enormous and increasing negative value as you spend huge sums of money and can't sell or rent any of the project. This is where normal people get nervous. "Hundreds of millions of pounds, that's so much money..!". The developer is then able to say, "I guarantee this project". In practice, what this really means is that a financial institution will guarantee the project.
As well as covering the cost of borrowing the money, the developer must carefully manage the project which requires a skilled team. They must also set aside some of that ‘future money’ as security during construction as a contingency sum, because whenever you start a building project, you always find unexpected problems. No problems on site means more money left over. It's not rocket science.
Once the project is over, loans are re-paid and the developers own expenses are covered, a for-private-profit developer will take any surplus as dividend payments for its shareholders. A not-for-profit-developer uses that surplus differently; to either pay for the site, or, as the final costs become clear, they can include additional facilities, increase the proportion of affordable units or re-invest in future projects, or simply just get it done to make sure new homes are delivered where they're desperately needed.
So, it is important to make a surplus to ensure that the project can progress smoothly. If we're successful in our bid to buy the site, we will retain the surplus money in the project as a contingency sum. Once completed, we'd then split any remaining surplus 50/50 with Brighton and Hove City Council. Remember, Little Ships is not-for-profit, so we'd re-invest in building more homes.
Without the need to syphon off a large surplus, Little Ships can deliver this project and focus on what matters – creating a community, constructing inspiring, affordable places to live and breathing new life into a very special place.