£12 billion Earl’s Court scheme value hidden to avoid affordable housing

EC ariel

After nearly two years of fighting to get the viability assessment of the Earl’s Court scheme, Capco and Kensington & Chelsea finally gave in to the Information Commissioner’s demand that the report be released. The Councils and the developer had good reason to keep the assessment produced by DVS secret. The scheme is not worth £8 billion, but £12 billion – and that was in September 2012. So imagine what it’s worth now!

Amazingly the DVS review showed that the scheme was not viable on the basis of Capco’s assumptions, a reason in itself not to approve the scheme. But it was also critical of Capco’s reluctance to co-operate with the assessment. Throughout their review, DVS questioned the calculations and methodologies that were used to justify 11% of so called ‘affordable’ housing.

In their defence, Capco claims that “the DVS had full access to all relevant Capco information”. But this is not true. The DVS report cites 23 separate issues on which information or evidence required was not supplied or clarity was not provided on how sums were calculated. It refers to “queries that remain unanswered” (benchmark land values), and information requested that “has not been forthcoming” (income in respect of land surrounding Empress State).

With reference to rent free periods, DVS states: “Further explanation is required … and we have requested this information from the applicant. To date this has not been forthcoming”. DVS queried the values adopted for other uses: “Despite requesting this information … we have not had the opportunity to review these values”. The phrase “we have not been provided” runs through the report like the wording in Brighton Rock.

Further in their defence, Capco claimed that “calculations referenced in the report were based on standard industry processes and methodologies”. But this isn’t true either. In at least 17 areas the DVS report questions the processes and methodologies as not being consistent with the standard approach for making calculations. Under the heading “Methodology” DVS states: “The approach is not a common method of considering viability assessments”.

Capco made such pessimistic assumptions that DVS concluded: “The scheme is not viable on a present day cost and revenue basis”. “We do not accept the method by which they determine individual plot values”. DVS had to eliminate 3% of the scheme cost because it was double counted. In respect of the land around the Empress State building, DVS say: “The methodology for assessing this site is flawed”. DVS questioned the basic assumption that plots would be sold to other developers to build out: “We are of the opinion that the exit strategy assumed by the applicant is not a consistent approach …We find it hard to comprehend why indeed the applicant would sell the land short”.

DVS question the overall approach made by Capco: “A fundamental area of concern to us is the level of detail that informs the residential sales revenue and construction costs and the reliance upon average unit sizes, blended capital values and the broad ranging unit assumptions that have been adopted to inform the anticipated residential revenue of c. £10.81bn of the entire scheme value of c. £12.05bn”. DVS’s solution, which they had been tasked to consider as part of their brief, was that there should be a review mechanism to capture any improvement in performance relative to the viability review. Capco refused and the two local authorities gave in to the developer.

Kensington & Chelsea Council’s defence is just as contradictory as Capco’s: “The viability assessment prepared by DVS was considered by the council to be comprehensive and robust”. On that basis they should have rejected the scheme. The problem was that the DVS review was not properly presented in the Officers’ reports to the planning committees, DVS’s fundamental concerns and multitude of reservations were not conveyed to Members, and the public was kept in the dark.

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