22 February 2013
Dear Mr Pickles
London and Quadrant and the Walthamstow Greyhound Racing Stadium site.
SOS letter to HCA the social housing regulator (17 April 2012) and their response (17 May 2012)
Copies of the above letters are enclosed for your attention (listed below this posting).
The regulator has missed the point of our representation completely. Kevin Millgate has simplistically taken each allegation in turn and advised why the regulator does not have a remit to raise regulatory concern.
There are three areas of inadequacy in this instance that are sufficient to warrant investigation, our list of allegations should be read collectively. Together they provide evidence that cannot be ignored and which gives the regulator a remit to intervene.
Area of concern 1
What the regulator should be looking at here is the incompetence and mis-management of development activities by this RSL. Our allegations and the submitted evidence demonstrate this on one, major site beyond reasonable doubt. How many other sites lay in their books in a similar state?
We note that key development staff involved in the acquisition of this site has now all left the employ of L&Q. What other financial disasters have they left in their wake?
We have demonstrated to the regulator that this site will make a substantial loss of millions of pounds. Mr Millgate’s comments about rental income and retail rents in his reply to allegation 7 simply demonstrate that he does not understand the figures presented to him. These values have been capitalised in the viability illustrations we supplied with our letter.
These figures have now been confirmed by the release of L&Q’s own viability analysis (attached) submitted with the application and disclosed after a tortuous freedom of information battle whilst they desperately battled to keep the information from the public. They are also confirmed by the GLA’s own commissioned viability report which shows the scheme just about breaks even-so long as you ignore the price paid for the site (£18m) and the holding costs since 2008 (about £3m).
What needs investigation by the regulator is the competence of the development department at L&Q. Our allegations demonstrate why this is required based on our experiences at just one of their sites. There are others we know of in the same or neighbouring boroughs such as at Cat Hill where equally low provision of affordable and social units are being proposed due to very poor / negative viability positions.
The Walthamstow Stadium site provides only 24 affordable rent units and no social rented units at all. Given that the regulator is supposed to be checking that the RSL has a ‘strategic approach to achieving value for money in meeting their objectives’, we suggest that this very much demonstrates why an investigation is needed…assuming you agree that L&Q’s objective is one of delivering social and affordable housing?
As far as can be determined, the L&Q development team were all career RSL officers with very little private sector / commercial experience. It should be of concern to the regulator that such significant strategic mistakes have come to light and this RSL should be investigated to see where else their poor development acquisitions might be being covered up.
At a meeting about the Walthamstow Stadium site in 2011, L&Q’s Chief Executive stated, in front of both local MP’s, that they had a bank-roll of £400m and could deal with the financial ups and downs of the property market. The point here is, if they have many other ‘Walthamstow Stadiums’ in their portfolio, that £400m might start to look inadequate. It is hardly a value for money strategy for the use of publicly funded reserves is it?
Further when the viability position was eventually disclosed L&Q’s spokesperson proudly announced that they were not concerned and any shortfall’s would be funded from their reserves. The local Guardian’s quote was ‘L&Q said it did not consider the shortfall to be a “loss” because it would be funded by its reserves’. Well, L&Q’s reserves are funded by the taxpayer.
Most importantly, with respect to this issue, is the perception of the markets on L&Q’s financial position. L&Q recently raised significant sums on the bond market. To maintain investor confidence, the regulator should double check on this development department and make sure they don’t have any more skeletons in their cupboard. As we have stated above we mainly have knowledge of their operations in Waltham Forest but the problem may exist in other boroughs. The regulator is on notice with respect to this matter and failure to act could subsequently leave responsibility for failings of L&Q at the door of the HCA and the GLA. The money involved here (in the order of £20m) relates to the order of magnitude of sums published in recent regulator judgements and which have prompted intervention and investigation of RP’s. Why do L&Q not warrant the same level of scrutiny?
Area of Concern 2
L&Q has consistently misled the local public in their dealings with the site. The planning meeting last year provided a graphic demonstration of public discontent. Their actions have caused significant anger and frustration with the people of the borough of Waltham Forest where they are a partner/approved RSL. This has brought the RSL into disrepute and L&Q is widely viewed as an arrogant developer with little concern for the local communities.
When the new regulatory body was launched you will probably be aware of its luke-warm reception by those interested in the self regulated RSL sector. Another toothless lap-dog rather than a watch-dog summed up the response. Co-regulation wasn’t working and the initial response from Kevin Millgate suggests those sentiments might have been correct. We hope you will review this matter and instruct the investigation that is required. The money being wasted is neither the officers’ nor the board’s money. It is public money and must not be squandered like this.
Area of Concern 3
Boris Johnson publicly stated when he decided to allow the local planning decision to stand, that the L&Q scheme ‘more or less breaks even’. This showed an astonishing ignorance of the BNPParibas viability report which his own officers had commissioned to inform him about the viability of the L&Q development (copy attached). It only just about breaks even if the purchase price and holding costs are conveniently ignored (the purchase price alone was £18m).
What is the point in the GLA commissioning an expensive and professionally prepared report if they don’t actually understand what it is telling them.
Even more worryingly, the GLA is now responsible for handing out affordable housing grants and seems to be committed to contribute several hundreds of thousands to L&Q’s efforts here. Presumably the ignorance of this viability position continues at City Hall as all this grant money does is help L&Q offset some of their horrendous losses.
This is a public disgrace. The Local Authority contrived to help L&Q get their planning permission through for this redevelopment against the wishes of the majority of the local population. Our campaign group reluctantly accepts that this travesty has now probably run its course. HOWEVER…..that does not mean that the regulators and all those interested in efficient use of public funds should now turn a blind eye to this blatant waste of public money by an incompetent Housing Association’s development team. Similarly, how can the GLA be trusted with distribution of affordable housing grant when quite clearly the senior officers and the Mayor himself cannot correctly interpret a viability report (which they actually commissioned).
We hope that you will investigate this case and advise us accordingly
Rick Holloway (on behalf of Save Our Stow)