Previously confidential documents show that whilst Londoners faced an affordable housing crisis, Wandsworth Council negotiated away over 1000 affordable homes on the Battersea Power Station site in order to prop up the failing company Treasury Holdings.
The attempt to bail out Treasury with permission to build luxury properties failed, the company went into administration shortly after they were granted planning consent. But the affordable housing was lost forever, with the site being sold on with the benefit of planning permission to a Malaysian consortium of developers.
The missed opportunity
This website has obtained a copy of the original financial viability assessment produced by Treasury Holdings as part of their 2010 planning application. This was required to justify Treasury’s proposal to cut the numbers of affordable homes on the site. The document is a huge ring binder full of financial tables, an excerpt from the review of the document commissioned by the council is displayed below.
BNP Paribas who reviewed the viability assessment on behalf of Wandsworth Council advised them that they would be well within their rights to insist on up to 50% of the homes being affordable – 1722 in total, and that was in the days when affordable really meant affordable. BNP Paribas told the council:
“If GLA [Greater London Authority] guidance is applied in the strictest manner, the development should be capable of providing policy compliant levels of affordable housing and financial planning obligations.”
In another part of the report a table is produced showing that if the planning guidelines set by the Mayor were adhered to, it would have been viable for the development to provide 50% affordable housing and £670m in planning obligations. That was enough to pay for the entire estimated cost of the Northern Line Extension at the time. And all of that was on top of a 20% annual return for the developer.
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Assets under water
However there was a big problem. At the time of the planning application in 2010 Treasury Holdings were in trouble. The company had bought the iconic site in 2006, with planning permission already in place to build an exhibition centre, theatres, hotels and housing for £448m. By 2010 the global financial crisis caused the value of their investment to collapse to just £67m.
Financial viability for planning purposes is worked out by looking at the increase in value a new development will generate over the value of the land at the time of the application (without development). What that meant is that had Wandsworth insisted on applying the planning rules Treasury Holdings would have to write off most of the money it had paid to acquire the site in the first place. As BNP informed the council, that could send Treasury Holdings into bankruptcy.
The BNP Paribas document states:
“This [insisting on a policy compliant development] is very unlikely to be acceptable to the applicant [Treasury Holdings] (any land write down would result in a substantial funding requirement, which is unlikely to be forthcoming in the current market) and the most likely outcome would be the withdrawal of the planning application.”
A more pragmatic approach
BNP suggested what they called a “more pragmatic approach” – that was, rather than use the land value at the time of the application as a basis for the viability assessment, they took the land value when Treasury bought the site in 2006, before the financial crisis, when the market was flying. They estimated this to be £309m, still substantially less than what Treasury paid for the land, but almost 5 times what it was actually worth.
Using those figures the site would sustain 15% affordable housing – or 517 units out of a total of the 3444 proposed – and a more modest contribution to the costs of the new tube line. Again, all on top of the 20% annual return for the developer agreed as acceptable by BNP and the council, a staggering £1.8bn according to the documents obtained by ourcity.london.
That pragmatic approach failed. Treasury Holdings couldn’t find a partner for their project, causing them to default on their loans. The Battersea Power Station site was then taken over by their creditors, Lloyds Bank and the National Asset Management Agency (NAMA). NAMA was an Irish government institution which took over the bad assets of Irish Banks to bail them out during the financial crisis.
London the loser
In the end it was London that was the loser. Despite Treasury Holdings going bankrupt, the value of the site with the new planning permission it had secured was still considerably more than it would have been under with the previous plans. This meant that when NAMA and Lloyds came to sell the site onto the Malaysian consortium that is building Battersea today, they could command a considerably higher price for the land with planning permission – £400m, rather than the £66m it would have been worth had planning permission not been granted.
In other words, had the Tory councillors on Wandsworth Council, or the then Conservative Mayor, refused to bail out Treasury Holdings by accepting their request to drop over 1000 affordable homes from the site, and simply let the free market run its course, then Lloyd’s and NAMA would have been forced to take the hit on the loss of value on the site. The land could have been sold to a developer at a lower price, allowing them to come forward with a scheme that delivered more affordable homes. In short, it would have been Lloyds Bank and the Irish government, and not ordinary Londoners seeking a home, who would have paid the price for Treasury Holdings’s gamble on the London property market.
A short version of this story, based on the documents uncovered by this author, appeared in the Observer this week. This is the first time that the full details behind the Battersea Power Station deal have been revealed.
Coming soon – has a slip of the pen cost Battersea even more affordable homes.