Lambeth council are set to lend up to £600 million to a housing company which has just been formed – after borrowing the funds from elsewhere.
The new council-owned house building and management company – generically known as Homes for Lambeth but now using four different names – will have DEBTS of £165 MILLION by 2023, says a report* to next Monday’s meeting of Lambeth council’s cabinet.
Lambeth council initially plan to lend monies for demolishing three estates – Knight’s Walk which is part of the Cotton Gardens estate off Kennington Lane; South Lambeth estate, South Lambeth Road SW8 and Westbury, Wandsworth Road, SW8 – and then rebuilding them.
With three other estates under similar threat – Central Hill estate in Crystal Palace, Cressingham Gardens at Tulse Hill and Fenwick estate near Clapham North tube station- that could take the figure to around £600 million.
The report – published on the day Carillion collapsed – says:
Lambeth council will be BORROWING money to “on-lend” – lend borrowed money to a third party -to the company.
There is a stark warning in the report that: “It may well be that by lending to Homes for Lambeth, the council are limited in the amount of borrowing it can undertake for other projects. (3.9)
The report also warns: “In borrowing itself, in order to on-lend to the company, the council needs to be aware of the risks involved and conscious of how the significant amount of borrowing involved will impact on the wider Treasury management position.
“The current modelled position for the three initial estates – Knight’s Walk, South Lambeth and Westbury – shows a peak debt level of £165 million for the group of companies in 2023, which is largely comprised of debt to the development company of around £125m.” (Par 3.5)
The initial development costs of the three sites are estimated (our italics) to be £286 million including buy back costs.
The business plan assumes (our italics) that the company will borrow from the council at State Aid compliant rates, although the company can potentially borrow elsewhere; in the initial years of operation it is assumed that the council will be the cheapest source of funding available.
The report also warns that other homes in the borough – apart from the six council estates Lambeth want to demolish – could also be under threat:
“In addition to the three estate regeneration schemes, it is also expected that Homes for Lambeth will look to develop other smaller sites in the early part of its operation.” says the report.
Detailed costings of these sites have not yet taken place, but the expectation is that the development cost here would be in the range of £30 million – £50 million. Therefore the total borrowing by Homes for Lambeth is likely to exceed £300 million in the first phase. (3.6)
Among the many variables that will impact on the viability of the initial three schemes are construction costs, sales values and rental income and the level of grant funding to be received from the GLA, the report adds. (3.7)
*Adoption of Homes for Lambeth business plan (Item Four)
‘HOMES FOR LAMBETH’ STRUCTURE:
‘HFL Group Ltd’ is the holding company within the HFL group. It is private company limited by shares, all of which are held by the council.
Under HFL Group Ltd are three separate companies:
2.22.2 ‘HFL Build Ltd’ is a development company responsible for building new homes. It is private company limited by shares all of which are held by HFL Group.
2.22.3 ‘HFL Homes Ltd’ is intended to become Registered Provider of social housing regulated by the Homes and Communities Agency during the period covered by this business plan.
It will acquire affordable housing from HFL Build and also Section 106 properties, which are secured from developers by the council through Planning Obligations and are delivered by third party developers and then acquired by HFL Home.
Again, it is private company limited by shares, all of which are held by HFL Group.
2.22.4 ‘HFL Living Ltd’ is a Private Rented Sector (‘PRS’) housing company that will acquire new PRS housing from HFL Build to manage over the long term. It is private company limited by sharesall of which are also held by HFL Group.
Articles of Association for all four companies can be found on the lambeth.gov meetings website. All four have the Pinsent Masons logo on their front page – please go to lambeth.gov meetings calendar – then cabinet on the calendar for next Monday to access all reports.