Parkside Regeneration LLP the Taxpayer Asks

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This is not article about the merits or otherwise of the Parkside Development nor is it to question St Helens MBC’s strategy to develop joint ventures with the private sector.   Moreover we recognise the government has dramatically reduced central government grants under the local government finance bill.   These are to be phased out at the end of this Parliament but allowing councils to keep 100% of business rates.   Although councils with poor economic activity will be compensated by the government by re-distributions between authorities.

Nonetheless there is a clear incentive for local authorities to maximise their business rates.   St Helens Council are moving in this direction and this is perfectly understandable.

So this article is not about “the what” “the why” but it certainly very much about the “how”.  We live in an age of 6% double inflation council tax increases of public services disappearing or being cut to the bare bones.  The public are being asked to pay much more for much less.   That’s unfortunately economic reality given we have a national current account deficit and 25% of all government expenditure is on local government.

But with that must come trust and clear confidence by the public there diligence and transparency with regard to expenditure by local authorities.  Clearly if money is so scarce in local authorities every penny spend must deliver for the public and be accountable to the public.

LP Image_-2

St Helens Town Hall – St Helens MBC looking to increase business rates to fund the future borough following government leglislation to how local authorities are funded.

 

Letter St Helens Council Oct

This is St Helens Council’s response to our request for information on a number of matters relating to the joint venture, see further on in this article for the full request.

Essentially what the council are saying above is the information requested is commercially sensitive and therefore must remain outside of scope of public freedom of information.  They also have pointed us to public information such as the published accounts at company’s house.   Given an explanation is not to be forthcoming from either the council or Langtree we can only report what we see in that public information.

Namely that there is a near three million pound loss in the first year of trading primarily due to the write off of land and building values of two and a half million pounds.   It would seem in the first year of trading the asset was valued at £3,250,000 not the £5,720,549 of public money used to purchase the asset just a matter of months before.

St Helens MBC in their response have pointed out the project is a long term project and will bring much needed local jobs to the area.   That might well be the case but what the taxpaying public might want to understand if indeed the Land and Buildings are worth (at market value) just over three million pounds, why has near to six million pounds been spent on the asset?

Had £3,250,000 been spent then the project could proceed, as now, but with £2,470,549 more in the council’s bank account.   Money which could have been re-allocated to be spent on public services.

Also we question the commercially sensitive aspect yes certainly at the time of negotiations confidentiality was necessary however this transaction is almost three years old and the vendor of the land Pro Logis long gone.   However this is the position and if the council and or Langtree would offer an explanation at a later date we would be happy to publish it.   Likewise anything in this article which is misleading or inaccurate OLV will be happy to amend.

St Helens MBC is aware of our intention to publish this article and for the record the council have been both responsive and supportive in providing information.

In early 2014 Our Local Voice became aware the financial arrangement between St Helens MBC and Langtree Land and Property PLC..   This was to be managed within separate limited partnership, a distinct and separate legal entity from either the council or Langtree.   Parkside Regeneration LLP was therefore formed on 17th December 2013 between Langtree Land and Property PLC and St Helens Metropolitan Council.   However it appears on the 12th June 2015 Langtree Land and Property PLC resigned and the members of the Partnership today are St Helens Metropolitan Council and Langtree Property Partners Limited.

According to public records the capitalisation of the company at formation was £7,500,000. Of which £6,000,000 was provided by St Helens Metropolitan Council and £1,500,000 by (we presume) Langtree Land and Property PLC then to be replaced by Langtree Property Partners Limited.

The capitalisation was

£3,000,000 shareholder funds (equity) divided equally between the council and Langtree

£4,500,000 loan made by the council held as a charge on Parkside Regeneration LLP (not Langtree Property Partners Limited).  An important point which we will cover later.

At the time in 2014 we submitted a series of Freedom of Information Requests (FOI) to St Helens MBC.   The full unedited version is at the end of this article below however in synopsis from the information the council provided it appears that.

In 2013 Langtree were in direct negotiations with Pro Logis for the sale of the former Parkside Colliery Site and that these negotiations were concluded or near to concluded.   At some point Langtree then approached St Helens Council with an offer for the council to be directly involved in the development.

This was approved at council cabinet meeting 13th September 2013 and legal documentation drawn up leading to the formation of the company 17th December 2013.

Key points to note from the information the council provided under FOI

1 – No external legal advice was sought by the council prior to the cabinet meeting 13th September 2013.

2 – No agreements took place between the council and Langtree before the above cabinet meeting.

3 – No analytics or business case was produced by the council for the venture.

4 – No independent land valuation took place because negotiations had reached agreement in principle between Langtree and Pro Logis.

5 – No procurement exercise took place because Langtree had approached the council.

From 2014 Parkside Regeneration LLP started to trade and there have been three published accounts so far.   However there was a transaction in the first set of published accounts to 31st March 2015 that has attracted some attention.

Our Local Voice has queried this transaction with both Langtree and the council in writing but we have been unable to obtain a satisfactory explanation.   In essence (predominantly with public funds) Parkside Regeneration LLP paid £5,720,549 according to the published accounts at companies’ house for the Land and Buildings of the Parkside Colliery Site.   Within the first set of published accounts to 31st March 2015 there was a write down provision of the land and buildings by £2,470,549 putting the realisable value of the land and buildings at just £3,250,000.

Notes on the 2015 accounts states

“The site was independently valued at February 2015 by Jones Lang La Salle in accordance with the Royal Institution of Chartered Surveyor Standards”

The ineluctable facts in the published accounts that are that a predominantly council funded joint venture has spent £5,720,549 on an asset that just around 11 months later, it seems, is worth £3,250,000, a loss in value paid of a staggering 43%.

By any standards this is an extraordinary transaction, the vendor of the land the San Francisco global real estate developer Pro Logis one would imagine would not be in a strong negotiating position given the land was green belt and only had local plan inclusion as a potential Rail Freight Terminal with local plan terms that it can only be a Rail Freight Terminal.   Pro Logis and Astral Developments had spent the best part of a decade attempting to develop a plan for a Rail Freight Terminal and had withdrawn. Therefore one might reasonably expect the external market for rail freight developers wanting to buy the Parkside Site for Rail Freight not to be strong.

 

Land Valuation

Extract  March 2015 Accounts of Parkside Regeneration LLP

In times when local authorities were fully funded by central government this would have been an “eye watering” sum of money to exit from the council’s bank account with seemingly no end value.   However in these times of 6% double inflation council tax increases and cut backs in public services literally to the bone then this is certainly something for the local taxpayer to reflect on.

land Registry

From Land Registry records how much the vendor paid for the land and buildings orginally the land was bought orginally by Astral Developments who were later acquired by the american group Pro Logis.

However there are other issues worth bringing to attention in the public interest.

The general perception is that St Helens MBC provided one and a half million pounds for the equity of the joint venture and four and a half million pounds loan to Langtree.

This is not the case, the loan is a charge on Parkside Regeneration LLP in other words the company St Helens MBC is 50% owner of.   If Parkside regeneration succeeds as a business the funds will be repaid (with interest) to the local taxpayer, however if the business fails the taxpayer will be limited to any remaining funds within Parkside Regeneration LLP.

As at the last published accounts 31st March 2017 there are insufficient assets to cover the loan and accumulated interest at the agreement coupon interest rate of 4.42%.   If we add the equity investment of £1,500,000 to the accumulated loan and interest of £5,131,188 there is £6,631,188 of public funds at risk within the venture.

Charge

The loan agreement note the company number OC389956 this is the registration number of Parkside Regeneration LLP.

The interest is not paid in cash to St Helens MBC but “rolled up” on the balance sheet of Parkside Regeneration LLP as a liability.   As at March 2017 this liability was £5,131,188 which encompassed £4,500,000 capital and £631,188 of interest accumulated on the balance sheet at the coupon rate of 4.42%. The problem from the taxpayer’s point of view is this is at risk in the event the venture fails many normal commercial arrangements for loans and bonds are interest is paid annually negating to an extent the risk.   Also from a cash flow position the council is disadvantaged.

According to the published accounts charges have been made to Parkside Regeneration LLP by Langtree Property Services Ltd, presumably consultancy fees. The numbers are 2015 £160,018 – 2016 £137,414 – 2017 £175,000 total for these years £472,432. Whereas these are no doubt legitimate re-charges to the LLP Langtree are experts in this type of development and have detailed knowledge of the Parkside site.   However it is noted there are no re-charges from St Helens MBC surely the council are also providing executive consultancy and possibly external consultancy fees / specific traffic surveys and such like?

Taxpayers might want to reflect on this anomaly should the council have incurred costs attributable to the venture?

The Parkside venture seems to be, at least in part, contingent on the building of a link road.   It is noted the St Helens MBC are committed to a further £8,150,000 for this link road which is being built to accommodate the site. It is not clear whether this was anticipated when the decision was taken at the cabinet meeting 13th September 2013.   Particularly in the light of lack of business case etc we have asked this question also but received no response.

 

Balance Sheet as at 31st March 2017

The last published balance sheet for Parkside Regeneration LLP as at March 2017. You will note what is owed by the company to the taxpayer is more than the net assets of the company. Had the company been disolved at this date (in book value terms) there would be a shortfall in the amounts owed to the taxpayer for the loan £674,717 and the taxpayer would have lost the whole of its equity investment of £1,500,000.

BACK UP INFORMATION

Our request to the council – 24th October 2017

We are members of a local community group and have a website where matters of local interest are published for public consumption in our local area.

In early 2014 we published unedited details on our website of the arrangements where St Helens council had entered into a joint venture forming Parkside regeneration LLP.   This was obtained by a series of Freedom    of Information requests to the council which are attached to this email.

At the time this attracted some interest because according to the freedom information requests received St Helens Council had not performed business case or independent valuation of its own before expending £6,000, 000 of its funds in the venture.   £6,000,000, allocated £1,500,000 equity in the joint venture and £4,500,000 for an interest bearing loan from owed by Parkside Regeneration LLP to St Helens MBC. It seems the funds were principally required for purchase of Land and Buildings on the site.

Subsequently Parkside regeneration LLP has published three sets of audited accounts each for the years 2015, 2016 and 2017.

We have examined these accounts via Companies House and we have attached some relevant extracts.   These indicate a valuation was performed of the Land and Buildings (purchased above) at Feb 2015 by Jones Lang La Salle and that the valuation of such at £5,720,549 was revised downwards by £2,470,549 and a provision applied to the accounting records accordingly.

By any standards this is an extraordinary revision so soon after purchase.

We spoke to Langtree at the open days and submitted an email request July 2017 but were unable to obtain a response.

Furthermore we note the interest on the loan to the council is not paid annually in cash but accumulated as a balance sheet liability.   According to the last set of published accounts to 31st March 2017 the balance of the loan due to the council, including accumulated interest is £5,131,188 yet the net assets of Parkside Regeneration LLP are £4,456,471 a shortfall in asset cover of £674,717. Technically it appears the company has insufficient assets to redeem the council loan.

The £1,500,000 of public funds invested in Dec 2013 has seemingly been entirely eliminated by losses according to the accounts.

On another matter “related to” but not directly concerning Parkside regeneration is the Parkside Link Road business case which seems to indicate St Helens MBC are considering injecting a further £8,150,000 into the general proposal, see extract attached.

We would be grateful if you could help to clarify some matters?

1) In the light of subsequent events (outlined above) have you any comments to make on the original £6,000,000 transaction and its investment appraisal entered into by St Helens MBC Dec 2013?

2) In relation to the Parkside Land and Buildings purchased at cost £5,720,549 how can this be worth £3,250,000 just over a year later?

3) Have you any comments on the risk to the council loan and interest given the net assets position in Parkside Regeneration LLP on the basis of the 31st March 2017 accounts?

4) Have you any comment on the position of the £1,500,000 equity invested by the council into Parkside Regeneration LLP?

5) In relation to the £8,150,000 potentially new funds to be invested in the Parkside project were these perceived at the inception of the transaction of £6,000,000 in 2013 or are these a new requirement emerging from study or natural course of events.

We believe these matters are in the public interest and in the interests of public transparency of public funds, free to be published to the public.   It is the intention to publish again the freedom of information requests from 2014 within the context of this new information including any comments the council may have on subsequent events.

Please advise if you have any objections to the publication on our website.

 

Note to Directors Langtree

Our July email to the directors of Langtree following the public meetings where we asked about the Land and Buildings write down £2.4m. No response received.

 

Profit and Loss

Profit and loss first 16 months of trading Parkside Regeneration LLP

 

Photo Meeting 9th Sept 2013

Extracts from the cabinet meeting 13th September 2013 when the council gave authority to financially commit to the venture. Note legal and financial advisers to be appointed at a later date.

For our 2014 FOI into the original decision to spend 6 million pounds on the venture, see HERE

 

 

 

 

 

 

 

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