No 6282
Wednesday 24 October 2012
Vol cxliii No 5
pp. 54–81
The Council begs leave to report to the University as follows:
1. The University’s mission1 – to contribute to society through the pursuit of education, learning, and research at the highest levels of international excellence – is the strategic purpose that is the motivating force behind the proposals to develop its land at North West Cambridge.
2. The ability of Cambridge to remain in the small group of world-leading research universities depends in part on its ability to attract and retain the very best postgraduate students and post-doctoral staff. Both are categories where growth has been significant in recent years, and in which further growth is planned or can be anticipated.
3. The University faces competition for the most able staff and students from across the globe, and its reputation is affected by its ability in this environment to continue to recruit and retain the very best people. Surveys of staff continue to show that the cost and availability of housing is a major concern, and that the proposed development would make a significant difference in addressing those issues.2 Together with the adjacent West Cambridge site, North West Cambridge provides one of the few opportunities for expansion. It has been the long-standing view of the Council that development on this site is essential to the future of the University.
4. In summary, the North West Cambridge development affords the University the opportunity to differentiate itself from its competitors through the provision of extensive accommodation to a larger number of staff and students than ever before and to improve the experience of those individuals by providing a high quality environment within the City region in which they can begin their careers or undertake their studies.
5. As authorized by the Regent House in Grace 2 of 15 June 2011 (Reporter, 2010–11, p. 943), a planning application for the whole of the University’s lands at North West Cambridge was submitted on 22 September 2011. The Local Authorities’ Joint Development Control Committee: Cambridge Fringes at its meeting on Wednesday, 8 August 2012, resolved to grant consent for the application subject to certain planning conditions – which it is anticipated can be met by the scheme envisaged. Legal completion of the Section 106 agreement, for which heads of terms have been agreed, is anticipated by no later than the end of December 2012. A Section 106 agreement sets out the works to be undertaken or financial contributions to be paid by developers to Local Authorities in order to mitigate the adverse impacts of their development.
6. The Council previously set out its view that it was convinced by the strategic case for proceeding with a Phase 1 of the project, and that it believed that the project as a whole – and Phase 1 in particular – was financially viable in a Notice published in the Reporter on 26 October 2011 (Reporter, 2011–12, p. 82).
It remains satisfied:
• that Phase 1, described below, represents a sound investment for the University and remains financially viable, a view shared by the Finance Committee;
• that the projected capital investment required of the University for Phase 1 is affordable by the University within the context of Grace 4 of 9 February 2011 (Reporter, 2010–11, p. 490), and will not impair its ability to continue to invest appropriately in academic budgets and capital;
• that the risks of the project have been properly assessed.
7. The purpose of this Report is to seek approval for the commencement of construction work for Phase 1. If it is subsequently proposed to construct beyond what is described here, separate approval will be sought.
8. The Council wishes to ensure that there is no potential ambiguity about the view of the Regent House on this development; it will consider carefully any comments made in Discussion, and intends subsequently to call a ballot on the proposed Grace.
9. The proposal for the scheme as a whole is for a mixed use development, where the components of the housing for sale and the retail and commercial developments help pay for the University facilities. The development is financially satisfactory for the University, but the expected returns will be lower than a commercial developer would require. The financial appraisal does not capture the value of the strategic benefits to the University described at the beginning of this Report nor, for example, does it attempt to quantify the higher research income that might be expected from the pool of talent that will be resident on the site or from the new research and academic facilities that might ultimately be built there.
10. The plans for Phase 1 demonstrate the University’s distinctive approach to the development with the delivery of the social, educational, and commercial facilities keeping pace with the residential development. A detailed scheme has been developed which comprises:
• around 530 units for rental to qualifying staff on a subsidized basis;3
• 300 units of postgraduate student accommodation;
• some 700 units for sale on a market basis4 by residential developers under land sale agreements:
– the opportunity has been taken to designate a plot for development of homes on a ‘self-build’ basis;
– a small number of market housing units will be retained by the University for rental to staff who would not qualify for subsidised rents;
• food store and other shops;
• primary school;
• community centre;
• nursery;
• other community facilities including a care home;
• hotel;
• playing fields and informal open space;
• landscaping.
A block perspective model of the proposed Phase 1. The M11 runs in a curve south to north on the left-hand side, Huntingdon Road runs diagonally south-east to north-west towards the top of the model, with the Madingley Road park-and-ride facility in the south-west quadrant at the bottom. Further images can be found at http://www.nwcambridge.co.uk.
11. The development is intended to be one of which the University can be proud, and that will stand the test of time. The North West Cambridge development will represent the next generation of urban, sustainable living. It will be the first major development in the UK built to Level 5 of the Government’s Code for Sustainable Homes. Level 5 of the Code is effectively zero-carbon in sustainability standards and will mean that the dwellings will have some of the lowest energy and water use in the country. Non-residential and community buildings will be built to BREEAM Excellent standards. There will also be a district heating scheme and dedicated cycle links to the centre of the City and the West Cambridge site.
12. The provision of substantial housing will increase the number of staff who can live within walking or cycling distance of their place of work. The University’s retention of ownership of large areas of the developed site will provide an important land bank for future University academic and research use.
13. Planning of the development has taken account of the current and planned activity in the surrounding area. For example the new shops, the primary school, and community centre at North West Cambridge will provide much needed facilities for those already working or living in that sector of Cambridge.
14. The project team has continued to have dialogue with groups and individuals both within the University and outside. The website at http://www.nwcambridge.co.uk provides a useful resource for those wanting more information.
15. Under the current project programme it should be possible to achieve start on site in the second quarter of 2013, with delivery by July 2015 of rental housing for staff, the student accommodation, and the community facilities. The first delivery of market housing is expected from late 2014, but it is likely that the delivery of this housing in Phase 1 will be spread over the following two years or so.
16. The West and North West Cambridge Estates Syndicate5 (established by Grace 2 of 19 May 2011; Reporter, 2010–11, p. 795) is authorized where relevant to exercise in the name of the University the powers of the University. Its operations are monitored by the University’s Finance Committee through a Memorandum of Understanding.
17. It will be clear from the description above that the University intends to maintain over the long term its freehold interests in much of the site. For commercial and other reasons it is proposed to dispose of freehold interests for private housing, with some commercial disposals by long leaseholds. All disposals will be subject to a legal ‘rent charge’ to ensure the integrity and appropriateness of designs and the management of the site in order to preserve the University’s long-term interests.
It is intended that the University itself, through the Syndicate, will promote the development of the rental housing for staff. In view of the stated importance of providing facilities at the same time as the housing, it is planned to develop some of these facilities in the same way, and care has been taken to ensure that they are designed to be both commercial and integrated with the development.
18. The University has been required to provide the costs of building the primary school and contribute towards the cost of an off-site secondary school under the Section 106 agreement referred to earlier. Under recent legislation, the primary school must be a Free School, rather than one maintained by the County Council. The University has taken steps to ensure that it will be involved in the design of the school, regardless of which group will operate it, but is also discussing the possibility that it might play a more significant role in the school’s development through the Faculty of Education. A subsidiary advantage of such involvement would be that the University would retain the freehold of the site for the school which occupies 3ha in the central area of Phase 1, which otherwise would have to be transferred to the County Council.
19. Discussions are being progressed with two college groups, one on an occupational lease basis for accommodation within a 300-room postgraduate student complex provided by the University; the other for the purchase of up to 30 family housing units to accommodate junior tutorial staff or married postgraduate students with families. The work undertaken by a group under the chairmanship of the former Master of Emmanuel College, Lord Wilson of Dinton, and published as Growing Cambridge, has been further considered by a second group, also chaired by Lord Wilson.6 The Council believes that in due course proposals may come forward for a new society or societies at North West Cambridge. The Council also believes that there will be future attractive opportunities for donors to contribute to the foundation of such societies but also more immediately for the enhancement of the communities for students and post-doctoral staff. However, the financial appraisal for North West Cambridge does not rely on any assumptions about prospective donations.
20. The total undiscounted construction cost of developing Phase 1 of the scheme is expected to be £277m which will be funded in part by income arising from the disposal of land for private housing and in part by a loan of up to £250m from the University carrying an interest rate of 4.25%.
21. In addition, it is proposed that the University makes an equity investment of £25m in the project. Cost and income information for Phase 1 has grown in accuracy as the detailed design work has evolved. On the basis of this firmer evidence, the Council believes that it is appropriate to write off the original Chest loans to the project and convert them into an investment of £25m in the project. This will help ensure that Phase 1 will have paid off the principal on the loan of £250m within 40 years and shorten the early period during which it is forecast that income from the site will not meet the interest payments on the loan as explained in paragraph 23.7 Paragraph 23 of this Report also indicates that Phase 1 will have made a return to the Chest well in excess of this equity investment by 2052 as well as paying off the loan of £250m. In that context, the Council is content that the Finance Committee’s advice is justified that a new investment of £25m is created by writing off what were originally Chest loans of a similar size.
22. Rental receipts from housing for University staff and retail units will be used to service and ultimately repay the loan of £250m. A detailed financial appraisal which considers income and expenditure over a 40 year period to 2052 has been undertaken for the project. Key figures in the appraisal (discounted to today’s value) are shown below. On these figures, Phase 1 produces an internal rate of return (IRR) of 6.56%.
23. By 2052, the Phase 1 development is expected to have: net annual rental income of £25m; repaid in full the loan to the University by 2048; and returned an additional £114m to the Chest (undiscounted values). In addition the University will have an asset of substantial value at the end of the period. It should be noted, however, that in the early years of development and until 2024, the income generated from rental payments will not be sufficient to cover the cost of interest and that further small draw down of short-term loans but within the overall maximum permitted borrowing level will be required during this period. The chart below shows the income and expenditure flows and the repayment of debt:
The appraisal model is subject to regular audit by the University’s internal auditors, Deloitte, as part of the rolling internal audit plan for the North West Cambridge project. The formulae within the spread sheets which have produced the figures in this Report have also been more recently audited for accuracy by Deloitte.
24. The Council has imposed on the North West Cambridge Syndicate an obligation that the development will not impair investment in other academic priorities of the University. In operational terms, the Finance Committee has translated this obligation into the following financial metrics:
• The development should increase the value of the University’s assets after allowing for the costs of funding the project.
• The debt will be paid by the time the bond recently issued by the University matures in 40 years. In other words there will be no re-financing risk for the University.
• The peak borrowing requirement for the project should not exceed £250m, except for short periods authorized by the Finance Committee, to enable as necessary, the University to make optimal commercial decisions when disposing of land.
Income and inflation forecasts have been based on advice from external parties, who themselves have been required to evidence, as far as is possible, their assumptions based on market data and historic trends. Costs have been based on what is required to deliver a high quality environment. Some market testing has been undertaken to provide reassurance on the figures and the assumptions made and a substantial financial contingency (over £40m for Phase 1) has been included.
It is the view of the Finance Committee and Council that a prudent approach has been adopted with the assumptions used within the appraisal. In addition, a number of sensitivity analyses have been run, varying the levels of income and expenditure and allowing for delays in delivery of the accommodation. Analysis shows that the project is financially sound and that, except in extremis, the project will remain within the peak borrowing cap. Any member of the Regent House who wishes to see more detail on this (which is contained within papers to the Finance Committee) can do so by application to the Director of Finance.
25. The Council has reviewed the project and believes it is financially satisfactory for the University. It observes that what would normally be taken from the development by way of a developer’s profit margin will be invested in delivering a higher level of quality, sustainability, and community infrastructure than would be found in a normal commercial development. This is seen as critical in delivering a development worthy of the University.
26. In view of the above, the Finance Committee and Council remain content that the project is able to sustain itself financially whilst delivering the considerable strategic benefits for the University identified in this Report.
27. As indicated above, the Council wishes the development to proceed, to assist the University in its strategic goals.
28. The Council therefore proposes:
That authority be given to proceed with the development of a first phase of development at North West Cambridge as described in this Report.
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22 October 2012 |
L. K. Borysiewicz, Vice-Chancellor |
R. J. Dowling |
Robert Lethbridge |
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David Abulafia |
I. M. Le M. Du Quesnay |
Mavis McDonald |
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N. Bampos |
Nicholas Gay |
Rosalyn Old |
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Richard Barnes |
David Good |
Susan Oosthuizen |
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Charles Bell |
Andy Hopper |
Rachael Padman |
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D. J. A. Casserley |
Christopher Hum |
John Shakeshaft |
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Stephen J. Cowley |
F. P. Kelly |
Sam Wakeford |
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Athene Donald |
Vanessa V. Lawrence |
A. D. Yates |
1Grace 6 of 14 November 2001 (Reporter, 2001–02, p. 255).
2The research was carried out by the Department of Land Economy.
3The allocation policy was set out in the Green Paper published in the Reporter on 25 June 2010 (Reporter, 2009–10, p. 1010); this accommodation is sometimes referred to as Key Worker Housing.
4Independently of this project, the University already has provision to assist with the purchase of properties through its Equity Share Scheme and Loan Fund (Reporter, 2008–09, p. 155).
5The current membership is Mr Alexander Johnston (Chair), Professor Jeremy Sanders (Deputy Chair), Professor Ian White, Dr Richard Foster, Professor Robert Kennicutt, Dame Mavis McDonald, Mr Jeremy Newsum, and Dr Jonathan Nicholls.
6Growing Cambridge was referred to in the Council’s Notice of 24 October 2011 (Reporter, 2011–12, p. 82). The report of the second group referred to can be found at http://www.admin.cam.ac.uk/reporter/2012-13/weekly/6282/NWC_CollegeWG_Report.pdf.
7In its Notice of 24 October 2011, the Council had indicated to the Regent House in paragraph 8 that it had authorized a Chest loan of £13.25m in order that Phase 1 could be developed to the point of detailed design. That loan was in addition to the original warrants for the project that had amounted to £10.32m and which had also been described as Chest loans.