Tuesday, November 12, 2013

News: Council set to forward fund AMP development

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Rotherham Council is set to kickstart the next phase of development on the Advanced Manufacturing Park (AMP) with a potentially multimillion pound, finance deal.

The deal, approved by the council's cabinet last week subject to final cost, would involve the council borrowing money to help landowner and developer, Harworth Estates bring forward its R-evolution development of around 100,000 sq ft of high quality space targeted at (but not exclusively for) the type of businesses that make up the Rolls-Royce supply chain.

It comes at the same time as the the borough has to find a further £40m of savings in the next two years following £70m of cuts already made.

Based on the AMP, Harworth Estates was created to realise the property assets of what was UK Coal. With one of two new Rolls-Royce facilities, and two new University of Sheffield buildings, Harworth Estates expects these to be a further catalyst for interest from other companies wishing to locate on this prestigious advanced manufacturing development.

The developers expect the employment growth to go from 500 to 1,500 employees following Rolls-Royce's commitment to the site.

Outline plans for the first phase of the R-evolution development were submitted last month but delivering the speculative development remains difficult, despite interest in the units expected to be high.

The report outlines that in the current financial climate of tightened access to finance and bank reluctance to lend against property, finance for the development is unlikely to be secured from banks or equity funding providers. The report adds that Harworth Estates have had some financial difficulties with the insolvency of UK Coal and the general high level of indebtedness within the group.

In a report, Tim O'Connell, business development manager at Rotherham Investment & Development Office (RIDO), explained: "This is a classic case of market failure; there is demand from advanced manufacturing companies to locate on the AMP and the opportunity to make space available, facilitating a next phase of growth which will attract and secure quality jobs and wealth in Rotherham. However, this is not deliverable through conventional means in the current economic climate."

A detailed due diligence process is underway between Harworth Estates and the fund manager CBRE regarding funding from the £23m "JESSICA" city region fund that provides development and construction finance. However, the fund is only intended to provide finance for the development phase of a project in order that funds can be recycled and re-invested into other projects. There therefore needs to be provision for the loan to be repaid within a defined timescale.

Rotherham Council is proposing to unlock this funding by providing a certain financial exit, created by an agreement to purchase the development on completion of construction in return for receiving the revenue generated from rent. The council claims that as it can borrow capital at low levels of interest from the Public Works Loan Board, the whole project will be cost neutral or generate an overall surplus to the council on realisation of the asset. The purchase will only proceed on this basis.

Discussions are also set to take place regarding the estimated £100,000 per annum in business rates that would be generated by the development. As the scheme is in the Enterprise Zone the growth in business rates would be retained by the Sheffield City Region Local Enterprise Partnership (LEP). Partners will need to explore whether some of the increased business rates retained by the LEP should be returned to the council thereby increasing gross revenue.

Final figures are not yet known but last year Harworth Estates sold the fully-let, 87,500 sq ft Evolution development on the AMP for £7.2m.

Harworth Estates website

Images: Harworth Estates

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