7 June 2016 Corporate Report Format. To the Chair and Members of the Chair and Members of the Cabinet

Transcription

1 7 June 2016 Corporate Report Format To the Chair and Members of the Chair and Members of the Cabinet Approval of the Business Case for the development of a Hotel and Apartment Complex at Doncaster Relevant Cabinet Member(s) Cllr Joe Blackham Wards Affected Wheatley Hills and Intake Ward Key Decision Yes EXECUTIVE SUMMARY 1. This report seeks cabinet approval of the business case supporting the development of the New Hotel and Apartment Complex at Doncaster Racecourse by the Doncaster Racecourse Management Company Limited. The scheme consists of a 150 bedroom 3 star plus hotel, under the HiIton Garden Inn brand, and 57 residential apartments. 2. Doncaster Racecourse is internationally renowned and one of the borough s most important assets, delivering significant economic and reputational benefits to the area. This proposal aims to support continued growth of the racecourse, further increasing its position as one of Britain s and the world s premier racecourses. 3. It is anticipated that the new development will: create 600 temporary jobs during construction and up to 140 new permanent jobs in Doncaster generate over 3m annually to the local economy bring a new prestige hotel brand to Doncaster increase the availability of high quality residential accommodation in the borough. deliver an estimated additional gross income to the Council of up to 370,000 per year, helping to offset the impact of Government cuts 4. In addition, the development will offer a new town centre conference venue and add to the volume of current and proposed high quality developments including projects at Belle Vue, the former Bloodstock Sales site and the European Tour Golf Course at Rossington Hall, supporting the borough s inward investment goals. 5. The business case proposed will involve the Council agreeing to lengthen the term of the Racecourse lease to between years (subject to

2 further negotiation), which would extend the period of guaranteed income to the authority. The development also aims to increase profitability at the racecourse, increasing the level of dividend that the Council anticipates receiving in the future. In return, in the short term it will require an extension of the period that the Council receives a reduced level of dividend from the DMRC by 10 years (unless specified profit levels are achieved). 6. This report is being brought to Cabinet because if approved the Business Case will result significant changes to the income derived from the Racecourse by the Council. EXEMPT REPORT 7. The schedule to the report (to follow) contains information relating to the financial or business affairs of any particular person (including the authority holding that information) and as such is exempt under paragraph 3 schedule 12a Local Government Act RECOMMENDATIONS 8. Cabinet agree in principle to the proposal outlined in paragraphs of this report subject to agreement of suitable contractual terms; and 9. Cabinet delegate approval of final contractual agreements to the Director of Regeneration and Environment (in his absence the Assistant Director of Trading Services and Assets) in consultation with the Director of Finance and Corporate Services ( in his absence the Assistant Director of Legal and Democratic Services) and the Portfolio Holder for Regeneration and Transportation. WHAT DOES THIS MEAN FOR THE CITIZENS OF DONCASTER? 10. The development of the hotel on the racecourse is a longstanding ambition of both the Council and DMRC and will provide a significant boost to the local economy both by providing both up to 600 temporary jobs during the build period of the hotel and apartments and up to 140 permanent jobs within the hotel itself which by their nature will be filled by local people. 11. A recent study in support of a Town Centre master plan highlights that the Accommodation and Food Services sector, which includes Hotels, is forecast to have the third highest growth in employment by 2031 and that 75% of jobs in Doncaster are taken by Doncaster residents. 12. The jobs created will generate over 3m annually to the local economy, once established, which will be further boosted by the provision of new conferencing and hotel facilities which together with Doncaster s excellent transport connections, will strengthen opportunities for attracting interest and business investment from outside the area and potentially international conferences. 13. The development will also complement the regeneration of the area such as proposed quality housing development at Belle-Vue and Bloodstock sales

3 sites. 14. The development of the hotel and apartments will result in income to the Council through increased Business Rates, Council Tax and Ground Rent. The breakdown of this income is set out in the financial implications to this report. BACKGROUND 15. On 15 December 2005 following a procurement exercise the Council entered into a Joint Venture with Arena to form the Doncaster Racecourse Management Company Limited (DRMC) in order to redevelop and secure the future of Doncaster Racecourse. Under the terms of the Joint Venture the Council holds 19% of the Shareholding (in class A Share) and Arena hold the remaining 81% (in class B Shares). 16. Within the Articles of Association of DRMC it is set out that any dividend on profits paid in the first 30 years following incorporation will be in the following proportions A shares 7.5% and B shares 92.5%. This proportion varies to 19% to A Shareholder and 81% to B Shareholder for any superprofits which are 33% above those anticipated by the annual business case. At the end of this initial period all dividends will be paid at 19% to the A shareholder and 81% to the B Shareholder 17. On 15 December 2005 the Council entered into a Redevelopment Agreement with DRMC for them to redevelop Doncaster Racecourse by construction of a new exhibition centre and grandstand facility including new saddling stalls, turnstile/entrance blocks and horsewalk. 18. On 11 September 2007 following the successful redevelopment works the Council granted a 99 year lease of the Racecourse to DRMC this is due to expire on 10 September The current ground rent paid under the lease by DMRC to the Council is 134,000 increasing annually in line with RPI. 19. Simultaneously with entering into the Redevelopment Agreement the Council and DRMC entered into a Hotel Agreement with DMRC giving them an option to build a hotel on the Racecourse site subject to the prior approval of the Council in respect of both a business case and design specification for the proposed hotel. Provided that the business case is robust under the terms of the agreement there is limited ability for the Council to refuse approval for any scheme brought forward scheme as it cannot unreasonably refuse consent under the terms of the Hotel Agreement. 20. In November 2015 representatives of DMRC put forward a proposal or the development of a hotel and associated apartments to be built at the racecourse and requested the approval of the Council for the proposed business case. 21. The scheme consists of a 150 bedroom 3 star plus hotel, under the HiIton Garden Inn brand. The Hotel will be located at the western end of the Racecourse overlooking the A18/A638 roundabout. The hotel would be operated under franchise by the DRMC and be owned by them. In addition the Hotel would provide additional conferencing facilities which will provide

4 the Racecourse with the ability to provide mid-range conference and wedding facilities which cannot be provided with the current facilities located within the grandstand. 22. In addition the scheme provides for the construction of 57 apartments in a separate building to be delivered by a specialist Residential Builder under a sublease granted to them by DMRC. 23. The business plan provided in November for the Hotel and Apartment scheme calls for an increase of the initial term of the Lease to 150 years from the initial start date to expire in This would be linked to an immediate increase in the ground rent for the lease by circa 50,000 to 184,000 per annum. The ground rent will continue to rise annually in line with RPI. 24 The proposal is that DMRC will provide a significant investment into the Racecourse Site of Circa 18 million for the building of the Hotel. The funding will be procured by way of internal loan at commercial interest rates from Arena to DMRC. In order to give DMRC chance to recover the cost of this investment the business case calls for an extension of 10 years (to 40 years in total) to the period where the dividend paid to the A shareholder will be limited to 7.5% 25. In order to ensure the business case is assessed as thoroughly as possible the Council has appointed Faithfull and Gould to provide an assessment of the business case for the proposal a copy of their report is annexed in the Schedule to this report. OPTIONS CONSIDERED 26. There are two options available to the Council refuse to approve the business case put forward by DMRC for the development of the Hotel and Apartments on the racecourse site approve the business case and the associated extension to the lease and the period of the dividend payment agreement REASONS FOR RECOMMENDED OPTION 27. The development of a Hotel at the Racecourse has been a longstanding ambition of the Council since the signing of the original Hotel Agreement on 15 December The proposed development will bring new Hotel and conferencing facilities to Doncaster not only improving the economy of the area and creating jobs I the area, but also helping to ensure that the Racecourse will continue to provide a world class sporting facility which promotes Doncaster regionally, nationally and internationally 29 The Hotel Agreement places a duty on the Council not act unreasonably when considering whether to approve a proposed business case. Given that due diligence on the business case put forward by DMRC has been carried

5 out by Faithful and Gould on behalf of the Council and they have concluded that it is reasonable in the current financial climate refusing to grant consent may risk a legal challenge from DRMC IMPACT ON THE COUNCIL S KEY OUTCOMES 30. Outcomes All people in Doncaster benefit from a thriving and resilient economy. Mayoral Priority: Creating Jobs and Housing Mayoral Priority: Be a strong voice for our veterans Mayoral Priority: Protecting Doncaster s vital services Implications The Doncaster Racecourse and St Leger brands are important to the economy of Doncaster by giving regional, national and international exposure to the Area. Any development which strengthens these brands increases this exposure. The proposals will create short term and long term employment in the borough The proposals will generate income for the Council The proposal will provided new housing in the borough People live safe, healthy, active and independent lives. Mayoral Priority: Safeguarding our Communities Mayoral Priority: Bringing down the cost of living People in Doncaster benefit from a high quality built and natural environment. Mayoral Priority: Creating Jobs and Housing Mayoral Priority: Safeguarding our Communities Mayoral Priority: Bringing down the cost of living All families thrive. The proposal for the hotel will result in an iconic building overlooking an important gateway into the town of Doncaster Mayoral Priority: Protecting Doncaster s vital services Council services are modern and

6 value for money. Working with our partners we will provide strong leadership and governance. RISKS AND ASSUMPTIONS 31. As a result of unreasonably failing to approve the proposed business case the there is a threat that DMRC could take legal action which could lead to damages being awarded against the Council. This risk has been mitigated against by commissioning an independent report into the business case to provide comfort that it is acceptable in the current economic climate. LEGAL IMPLICATIONS 32. The variation of the lease will be classed as disposal of property under S123 the Local Government Act The fact that the Faithful and Gould report does not indicate that the increase in the ground rent received as a result of the change to the lease is unreasonable indicates the best consideration reasonably available is being achieved for the disposal. On this basis the Secretary of States Consent to the disposal is not required. 33. The Hotel Agreement entered into it 2005 provides that the Council will not unreasonably refuse to approve a business case brought forward for the development of a hotel on the Racecourse Site. As Faithful and Gould have confirmed the business case is a reasonable one the Council would be at risk of legal challenge should it refuse consent. FINANCIAL IMPLICATIONS 34 Current position The Council currently receives a ground rent of 134k per calendar year which is indexed annually by RPI based on the December inflation figure. To date the Council has received no dividends, although at the end of 2015 the values of our shares is returning back to the starting level which may mean we could receive dividends in the future. In the current lease the Council is entitled to 7.5% of the profit for the first 30 years and 19% thereafter. If super profits (see paragraph 10) are achieved, then the Council share of the profit increases to 19%. Lease Proposal The current arrangement for the profit share be extended for a further 10 years i.e. remains at 7.5% from original lease date of 2037 until 2047 and the super profit arrangements remain unchanged. A further 50k per annum (indexed as above) is payable from the date the Hotel becomes operational, which is likely to be mid-year The business plan shows profits are likely to increase due to the new hotel,

7 detailed in exempt schedule. Additional business rate income Based on comparator hotels around Doncaster, the introduction of a new hotel of three star plus 150 bed is likely to generate gross income of circa 150k and 250k of which the Council would currently retain 49%. This could also impact on the business rates valuations of other hotels in Doncaster as the valuation office looks at the level of fair maintainable trade across similar hotels in Doncaster; thereby potentially reducing the business rates income from other similar hotels. Additional Council Tax The provision of 57 luxury apartments would generate council tax income in the region of 70k. Clause on asset disposal. In the lease agreement any asset disposal in excess of 100k requires the consent of the Council and therefore any future disposal of the hotel would require the Councils approval. HUMAN RESOURCES IMPLICATIONS 35. There are no Human Resources Implications TECHNOLOGY IMPLICATIONS 36. There are no Technology Implications EQUALITY IMPLICATIONS 37. The Council is subject to the Public Sector Equality duty and must, in the exercise of its functions, have due regard to the need to: Eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the act. Advance equality of opportunity between people who share a protected characteristic and those who do not. Foster good relations between people who share a protected characteristic and those who do not. The recommendations of this report will not affect any group with any of the protected characteristics differently or disproportionately to any other group CONSULTATION 38. This report has been completed in consultation with the internally with the officers from the Regeneration and Environment service and externally with Faithful and Gould who have provided the due diligence report attached at the Schedule.

8 BACKGROUND PAPERS 39. Due diligence report into the Business Case submitted by DRMC carried out by Faithful and Gould REPORT AUTHOR & CONTRIBUTORS Adam Bottomley, Interim Head of Contracts and Commercial Property Peter Dale Director of Regeneration and Environment

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