|Consideration was given to a report on North Shore Hotel. |
The Tees Valley economy continued to grow, with positive signs across a number of areas and an increase in employment opportunities in many key sectors forecast. The positive economic growth underpinned work carried out in recent months to assess the demand and feasibility of a limited service branded hotel in Stockton which showed a significant undersupply of hotel rooms across the Tees Valley highlighting a clear, unmet market demand,. The report built on a report to Cabinet on 19th May 2016 and described the opportunity for investment in, and ownership of, by the Local Authority, a 125 bed hotel on the North Shore Gateway Site (NSGS). The report detailed work undertaken in respect of feasibility and demand for a hotel within the Borough, along with the principles of operation and management, the relevant terms of operation, necessary legal agreements and the financial and economic benefits of investment to the local authority, community and wider local economy.
A detailed report on the opportunity for investment in, and ownership of a 125 bed hotel by the local authority was presented to Cabinet at their meeting on 19th May 2016. The report contained detail of the feasibility, analysis and procurement process undertaken to determine the rationale for investment, the operational model and the management arrangements which were reflected in the following recommendations which were approved at Cabinet on 19th May 2016.
1. Cabinet approve the principle of investment in the development and ownership of a hotel.
2. Cabinet recommend to Council agreement to the use of prudential borrowing up to £17million to meet all development costs, fees and capital expenditure, to be finalised in a future report back to Cabinet and Council once the final capital cost is confirmed.
3. Cabinet give delegated authority to the Director of Finance and Business Services and the Director of Economic Growth and Development in consultation with the Leader of the Council and Cabinet Member for Regeneration and Transport to negotiate and agree the terms of all necessary agreements and leases to enable the construction, funding, operation and use of the proposed hotel.
4. Cabinet approve the selection of Interstate United Kingdom Management Ltd as the preferred management company, along with the brand franchise Hampton by Hilton and authorise the work to agree appropriate management and franchise agreements to enable the operation and use of the hotel in accordance with the agreed, submitted heads of terms.
5. Cabinet delegate responsibility for agreement of final scheme design to the Director of Economic Growth and Development in consultation with the Cabinet Member for Regeneration and Transport.
6. Cabinet authorise the establishment of a Local Authority Trading Company wholly owned by the Council so as to allow the Council to exercise in respect of the hotel development the power to trade contained in the Local Government Act 2003 and the Localism Act 2011.
7. Cabinet recommend to Council the approval of the case for the establishment of a Local Authority Trading Company as set out at paragraph 21-32.
8. Cabinet approve the appointment of the Chief Executive, Director of Finance and Business Services, Director of Economic Growth and Development and Director of HR, Legal and Communications as directors of the Trading Company.
9. Cabinet note that the Place Committee at their meeting on 13th June 2016 will be presented with the rationale and selection criteria adopted for comment prior to consideration of recommendations 2 and 8 above to full Council.
The recommendations for Council set out in the report reflected the recommendations made to Cabinet on 19th May 2016 and the subsequent Cabinet approvals. A copy of the relevant minute extract was attached to the Council report.
Details of the proposed scheme were presented to the Place Select Committee on 13th June 2016. The report of the Place Select Committee was attached to the report.
The North Shore masterplan was agreed in 2011. Since then, progress had been made in the form of 125 residential units on the Vivo housing development, completion of Thirteen headquarters and Fusion Hive Innovation Centre. A further 80 homes were planned as part of phase three of Vivo and Fusion Hive continued to exceed expectations with over 50% occupancy some 8 months after opening.
A key component of the masterplan was the development of the prominent gateway site, marked A1 on the plan provided. The masterplan identified the site for a hotel and leisure use, providing a high quality gateway to both the town centre and North Shore and strengthening linkages between the Northshore site and town centre via Church Road.
In order to maintain the positive momentum gained by the developments referenced above, work had been underway for a number of months to assess the feasibility and demand for a hotel on the North Shore Gateway Site (NSGS).
A hotel market and financial feasibility study had been undertaken to establish the current level of provision, market opportunity and potential means of delivery and operation of a hotel on the NSGS.
The findings of the feasibility study showed that there was an undersupplied hotel market in the Tees Valley, with internationally branded hotel supply particularly limited. The undersupply was evidenced by midweek occupancies across the Tees Valley peaking above 95% alongside evidence of growing corporate demand.
This level of demand was also evidenced by recent expansions of existing Premier Inn Hotels across the borough, the opening of a Holiday Inn Express in Middlesbrough in 2015 and further confirmed hotel developments by Premier Inn in Darlington and Middlesbrough.
Having established that there was a significant under supply of internationally branded hotel provision in the Tees Valley, the feasibility study went on to explore potential operating structures for a hotel along with the optimum number of bedrooms and detailed financial projections.
The main detail in this respect was that there were effectively four established operating structures for hotels in the UK which were; owner occupied hotels, management contract, lease agreement and a brand franchise agreement with a third party operator and that internationally branded hotel operators would look to require a hotel of between 125-150 rooms. This approach was reinforced by advice received during the feasibility process which showed a low level of market interest in a leasehold arrangement or direct investment from a major hotel chain.
A third party management company operating a brand franchise on behalf of a hotel owner was now the most common approach to hotel operation in the UK, with a number of local authorities adopting the position of owning hotels, operated on this basis. Detailed advice received, as part of the feasibility and demand analysis suggested that in order to secure an international hotel brand franchise, the recommended operational and delivery structure for Stockton, was capital investment by the local authority, who would secure a franchise agreement with a suitable hotel brand and seek a third party management contract for the day to day management of the entire hotel operation.
Examples of this delivery model could be found elsewhere in the UK, namely Stockport and Aberdeen and they were based on the premise that once a hotel operation had stabilised (usually over a period of 3-5 years) owners could bring the hotel to the investor market where it could be sold on the strength of an established level of demand / occupancy or continue to operate the hotel and bring forward for disposal depending on market cycles / economic climate at any given time.
Following conclusion of the demand analysis along with identification of the most feasible and deliverable operational model, agents acting on behalf of the Council undertook a thorough procurement exercise to establish a level of brand and management company interest.
Initial expressions of interest were assessed, with management companies Redefine BDL and Interstate United Kingdom Management Ltd (Interstate) along with brand franchise Holiday Inn Express and Hampton by Hilton invited to submit detailed proposals including financial forecasts based on occupancy and average room rate payable along with draft Heads of Terms (HoTs) for operation.
A period of assessment which included detailed appraisal of the HoTs, analysis of financial forecasts, numerous discussions with operators and brands as well as site visits was undertaken throughout late 2015 and early 2016.
A key element of the procurement process was an assessment of the HoTs and negotiation on a number of elements within the document to ensure the most favourable terms for the Council going forward. During this process, advice was received from hotel consultants, CBRE to ensure negotiated terms reflected wider hotel market trends and provided the right balance between financial value and operational relationship between owner and operator.
The HoTs set out a series of fees and conditions of operation, the length of term for the management and franchise agreement and the owners' rights in respect of performance management and potential termination of contracts.
Appraisal and negotiation of HoTs took place alongside formal interviews held throughout late March and early April which enabled officers to identify a preferred operator and brand franchise with which to move forward into formal agreement pending approval by Cabinet and Council. Following the appraisal process described, Interstate emerged as the preferred management company with Hampton by Hilton identified as the most suitable brand franchise to enter into operation with.
Subject to approval by Council, the negotiated HoTs would form the basis of operating and franchise legal agreements going forward.
In order for the Council to have the power to trade, in the form of a hotel, a Local Authority Trading Company (LATCo) wholly owned by the Council would need to be established in line with requirements of the Local Government Act 2003 and the Localism Act 2011.
Part of that process required the production of a comprehensive statement as to the objectives of the business, the required investment to meet those objectives, identification and analysis of risks as well as financial results and expected outcomes from the business.
As a result of the Council wholly owning the LATCo all risks associated with the operation of the company and therefore the hotel would lie with the Council. A detailed financial appraisal which had been subject to independent due diligence had considered all possible financial and operating risks.
The business objectives for this scheme were to continue the positive momentum of development on the wider North Shore site, build on and support recent investment in the redevelopment of Stockton High Street and contribute towards positive economic growth and changing perceptions in the Borough as well as improve the appearance and function of a prominent gateway to the town centre. The development would also deliver much wider socio-economic benefits to residents, town centre businesses and local suppliers.
An Economic Impact Assessment (EIA) of a 125 bed hotel on the NSGS had been undertaken to assess the socio-economic benefits of the scheme. The headline findings were summarised below
£6.7million p.a. Gross Value Added (GVA) to local economy
Circa 100 direct and related jobs created
It was anticipated that circa 30 jobs would be created within the hotel itself. The majority of jobs created within the hotel would provide new opportunities for local people and it was therefore anticipated that the vast majority of jobs created would be taken up by residents of the Borough. Similarly through construction phases the Council's procurement procedures would seek to ensure that opportunities for local employment and the supply chain were always maximised.
A hotel of this size operating at the projected occupancy levels would see a significant increase in the number of visitors to the town centre, making visitor-oriented (restaurants, cafes, bars, entertainment and arts) services increasingly viable, thus increasing the vibrancy of the town centre offer, particularly the evening and leisure economy, creating circa 30 employment opportunities as a result of visitor spend which was estimated to exceed £1.6million per annum.
Similarly the forecast benefits through suppliers and expenditure from the hotel and hotel employees suggested circa 40 jobs would be created in local businesses.
Furthermore, a hotel of this size would bring about an increased income to local authority budgets through NNDR payments estimated to be in excess of £150,000 p.a.
The anticipated total cost for delivery of a 125 bed hotel on the NSGS was estimated at circa £17million. This figure included all construction costs, associated works and fees. At this stage the figure of £17million was an estimate based on existing market construction rates as well as tendered sums for design.
In order to meet the required capital investment, the use of prudential borrowing of up to £17million would be required.
As part of the assessment of management companies and brand franchises, detailed financial forecasts were requested from all parties as well as being sought through two independent specialist agents in the hotel field. All estimates received, including independent advice, forecast that the level of income after all expenses, fees and taxes was more than sufficient to cover the annual cost of prudential borrowing repayments on the anticipated capital cost of the project
Use of forecasts showing five years of trading was standard within the hotel market to assess a hotels performance at stabilisation. Use of projections at stabilisation gave a more realistic picture of future trading and a basis upon which to more accurately judge performance. Appendix B (exempt) contained a breakdown of forecast profit and loss at year five of operation. The table also built in deductions for a maintenance and repair reserve as well as taxes and other costs.
Assuming a prudential borrowing figure of £17m over a 35 year period, annual repayments would be circa £830,000. It could be seen from the table in the exempt Appendix B, that the net forecast income was sufficient to cover borrowing and all other costs based on forecasts undertaken.
A legislative, contractual, financial and operational risk assessment had been undertaken and monitored to ensure that all risks and uncertainties affecting the Council's and the LATCo position were identified. The identified risks in respect of the LATCo were set out at Appendix A.
Negotiations, in the shadow of a Compulsory Purchase Order for the acquisition of the former Kwik Fit building were progressing and initial discussions with the Homes and Community Agency, as land owner over a long lease on the site had begun with detailed negotiation and agreement of terms to be finalised subject to approval for the scheme from Cabinet and Council.
Subject to approval of all recommendations within the report, appointment of a design team would be undertaken along with drafting of all relevant legal agreements to enable development.
In accordance with Council Procedure Rule 16.4 Councillor Eileen Johnson requested that a recorded vote be taken; which was supported by at least a quarter of the members present.
For the motion:-
Councillors Bailey, Barlow, Beall, Brown, Cherrett, Mrs Clark, Cook, Cooke, Cunningham, Faulks, Grainge, Hewitt, Inman, Javed, Johnson, Mitchell, Mrs Nelson, Mr Nelson, O'Donnell, Parry, Patterson, Povey, Rowling, Smith, N Stephenson, Stoker, Stott, Mr Wilburn, Mrs Wilburn and Woodhouse.
Against the motion:-
Councillors Dennis, Gardner, Hall, Hampton, Houchen, Houghton, A Stephenson, Tunney, Vickers, Whitehill and Woodhead.
Abstained from voting:-
Councillors Atkinson, Clough, Corr, Dixon, Moore, Perry, Mrs Walmsley and Watson.
The motion was carried.
|Consideration was given to a report which provided an update regarding the Parliamentary Constituencies review being undertaken by the four UK Boundary Commissions in their respective parts of the UK. |
Previous reports were considered by Cabinet during 2011 with regard to the Parliamentary Voting System and Constituencies Act 2011 ("the Act") that required the four Boundary Commissions to conduct a review of the parliamentary constituencies in their part of the UK and to submit final reports to Government before 1 October, 2013. Members were reminded that no action was taken as a result of this previous review being postponed by Parliament, and that the Boundary Commission for England had now been tasked to complete the current review by September 2018.
Parliamentary Boundaries reflected the area where the electorate voted for their MP, the review would examine these areas and make proposals for a new set of boundaries of equal size, with Parliament specifying that the review must reduce the number of constituencies in the UK to 600 from 650
The North East had been allocated 25 constituencies (currently it had 29). The BCE's initial proposals would ensure that each of these constituencies were wholly contained in the North East region.
The BCE was also required by the Act to ensure that each constituency had an electorate that was no less than 95% and no more than 105% of the UK electoral quota. This quota had been calculated at 74,769. Accordingly, each constituency must have an electorate that was no smaller than 71,031 and no larger than 78,507.
Taking the requirements into account, the BCE would publish its initial proposals for England, including the North East in September, 2016.
It was expected given the rules that limit the size of the electorate and the reduction in seats that existing constituencies would have to change.
A 12 week period of consultation by the BCE on its initial proposals would begin in September 2016; there would be public hearings in each region with feedback published in early 2017. In addition there would be an on-line platform to facilitate consultation or it would be possible to write direct to the BCE.
The review would take place over approximately two and a half years with final recommendations submitted to Parliament in September 2018 and if agreed the new constituencies would take effect at the next scheduled General Election in 2020.
As soon as possible after the initial 12 week consultation period, the BCE would publish on its website all of the representations it had received for each region.
Once the representations had been published, there would be a further statutory secondary consultation period for four weeks, during which people could submit to the BCE written comments on the published representations.
After the end of the secondary consultation period, all of the representations received from the outset of the initial consultation would be considered and reports would be prepared for the BCE for each region. The reports would summarise and consider each of the representations, and recommend whether and if so, how, the BCE's initial proposals should be revised in light of the representations.
The BCE would publish a notice in each region, stating whether or not revisions had been made to its initial proposals for that region. All of the written representations submitted during the 4 week secondary consultation period would be published at the same time as the notice.
If the initial proposals were revised, there would then be a further, final period of eight weeks for written representations to be made to the BCE on the revised proposals for that area.
Once the BCE had decided on its final recommendations for the whole of England, it would then draft and submit a formal report to Government. The report, which would be published, would contain a description of the review in each region, a textual description of all of the final recommendations, and a set of maps to illustrate the existing constituency boundaries and those proposed by the final recommendations.
The submission of the formal, final report would conclude the review process.