Tax Increment Financing Buchanan Quarter Business Case V6: 6 DECEMBER 2011
Tax Increment Financing: Buchanan Quarter Business Case Glasgow City Council Contents Executive Summary... 5 Basis of Approval... 12 1 Introduction... 13 1.1 Project Overview... 14 1.2 The Case for TIF as a Prefered Funding Mechanism... 17 2 Context & Background to the Project... 19 2.1 Local, Regional and National Policy Objectives... 20 2.2 Glasgow 10 Year Economic Development Strategy... 21 2.3 Regional Strategic Fit... 23 2.4 Scottish Government Strategic Objectives... 24 2.4.1 SPP8 Town Centres and Retailing (2006)... 25 2.5 Key Stakeholder, Landowners and Partners... 25 2.6 The Suitability of TIF Funding... 26 3 Infrastructure Investment Plan and Incremental Revenues... 27 3.1 TIF Red Line Area... 27 3.1.1 Definition... 27 3.1.2 Description... 30 3.2 Overall Infrastructure Requirements... 30 3.3 Delivery Process... 33 3.4 Other Funding/Finance Help with TIF... 35 3.5 Sustainable Development... 36 4 Economic Impact Assessment... 37 4.1 Context... 38 4.2 Market Failure... 40 4.3 Counterfactual - 'but for test'... 42 4.4 Potential benefits if TIF is adopted... 45 4.5 Consultation Outcomes... 45 4.5.1 Response Rates... 45 4.5.2 City Centre Views... 46 4.5.3 National/Regional Views... 47 Page 2 of 89
Tax Increment Financing: Buchanan Quarter Business Case Glasgow City Council 4.5.4 Recommendations... 48 4.6 Net Additionality... 49 4.6.1 Approach... 49 4.6.2 Results... 51 4.7 Single Displacement Figure... 54 4.8 Wider and Longer Term Benefits... 56 5 Financial Analysis... 58 5.1 Base Case Assumptions... 58 5.1.1 Capital Expenditure... 58 5.1.2 Annual Borrowing Costs... 59 5.1.3 NNDR... 59 5.1.4 Timings... 60 5.1.5 Summary of Key Base Case Inputs... 61 5.2 Base Case Results... 62 5.2.1 Revenues... 62 5.2.2 Early Repayment... 63 5.2.3 Early Years Interest Gap... 64 5.3 Sensitivity Analysis... 65 5.3.1 Project Costs... 65 5.3.2 Interest Rates... 66 5.3.3 Void Rates... 66 5.3.4 Results Summary... 67 5.4 Development Funding Gap... 68 5.5 Underwriting by the Scottish Government... 68 5.6 Sharing in the Value Creation... 68 6 Risk... 70 6.1 Areas of Risk... 70 6.2 Asset Creation... 71 6.3 Third Party Challenges to TIF... 73 6.4 Procurement... 74 6.5 State Aid... 75 6.6 Changes in tax regime/borrowing restrictions... 77 6.6.1 Destruction of Buchanan Galleries in whole or material part throughout the period of the borrowing... 77 Page 3 of 89
Tax Increment Financing: Buchanan Quarter Business Case Glasgow City Council 6.7 Key Delivery Risk Considerations... 78 6.7.1 Market Context... 78 6.7.2 Buchanan Partnership (The Developer)... 78 6.7.3 Conclusions... 81 6.8 Key Agreements... 81 7 Delivery & Governance... 84 7.1 Project Strategic Steering Group... 84 7.2 Project Advisory Group... 84 7.3 Procurement and Value for Money... 86 7.4 Operational Considerations... 86 7.5 Key Personnel... 87 8 Next Steps and Approval... 88 Appendices A: DTZ/CBRE Leasing Strategy February 2011 (updated September 2011) B: GVA Grimley: Glasgow City Centre Retail Survey November 2010 (updated September 2011) C: URS Economic Impact Assessment October 2011) D: PWC Base Case Cashflow (updated September 2011) E: CBRE Risk Register February 2011 (updated September 2011) F: Eligible Works September 2011 G: Memorandum of Understanding (in progress; summary attached) Page 4 of 89
Executive Summary Introduction This business case sets out the rationale for proceeding with a Tax Increment Financing (TIF) initiative to realise the economic potential of the Buchanan Quarter of Glasgow city centre, an important but under performing part of the City Centre which incorporates the northern reaches of the city s Style Mile, the Queen Street station gateway, Glasgow Royal Concert Hall, Glasgow s Strathclyde and Caledonian Universities and the future City of Glasgow College super-campus. The Buchanan Quarter project (the Project) envisages substantial investment in transport, public realm and cultural infrastructure by Glasgow City Council (the Council) to unlock and secure significant private sector investment and deliver a range of long term economic and social benefits for the Buchanan Quarter and for Glasgow and its City Region more widely. The innovative TIF model is considered to represent the only feasible means through which these aspirations can be delivered, allowing the Council to secure the funding it currently lacks to invest upfront against the future business rates arising as a result of consequent investment by the private sector. The business case was developed by the Council and follows the guidelines issued by the Scottish Futures Trust (SFT). It seeks to satisfy the Scottish Government requirement that TIF, as a means of funding public sector investment in infrastructure is only applied where it is judged to be necessary to unlock demonstrable regeneration and economic growth in an area, and where such investment may otherwise be unaffordable to local authorities. The overarching goal of TIF is to support and guide the increasingly limited public finances available for assisting regeneration and helping to lever in additional private sector capital. The Buchanan Quarter project encompasses an exciting proposal that will deliver significant investment within Glasgow City Centre. It initially envisages that 80m investment in public realm infrastructure through TIF funding will enable: Public realm and infrastructure improvements in the vicinity of Dundas Street, Queen Street Station, and George Square, to improve access and connectivity, and increase the attractiveness of the City Centre Enhancements to Glasgow Royal Concert Hall, including improved disabled access, to enable increased usage and patronage and renewing the role of the facility as an anchor and showcase for the City s broader cultural and creative offering Highway improvements/traffic management to improve accessibility for public and private transport users Improved and safer pedestrian access to encourage increased footfall for the daytime and evening economy This will immediately unlock 310m of private sector investment (net of TIF) from the lead developer in the Buchanan Quarter who has a vision to create a Quarter with over 55,000 sq.m (592,222 square feet) of additional prime commercial, retail and leisure space and reduced replacement car parking (1,500 spaces) to support and enhance public transport access in the heart of Glasgow. The commercial elements of Buchanan Quarter are Page 5 of 89
not funded through TIF. Beyond this immediate private investment in the Buchanan Galleries development, the TIF works will unlock further development through increased connectivity to the wider Buchanan Quarter and benefit the City Centre as a whole. In the current economic and financial climate, the ability to access funds for investment, from both a public and private perspective, is challenging. The economic constraints facing the public sector mean it would not be possible for the Council to deliver the infrastructure investment needed to unlock development of the Buchanan Quarter by utilising its existing capital spending powers. For the key private sector partner in the project, funding the upfront infrastructure requirements that would be required to enable the project in its entirety, would lead to uneconomic rates of return, and as such, the investment would be lost to the Glasgow and Scottish economies in favour of alternative investment opportunities in the UK and further afield. This combination of unaffordability from public sector budgets, and inability within reasonable and sustainable economic parameters for the private sector to invest in the required enabling public infrastructure, meets the main but-for criteria for a TIF project. Approval to proceed with TIF would allow the Council to progress its aspirations for the Buchanan Quarter, unlocking direct investment from the private sector to anchor regeneration and acting as a catalyst for delivering future economic growth and social and regeneration benefits for Glasgow and the wider region. By capturing a proportion of the increases in New Non Domestic Rates (NNDR) from the proposed new private sector development the potential exists through TIF to realise the capital equivalent of 80m which would otherwise be unavailable. This amount affords the Council the opportunity to undertake the identified critical enabling public realm and infrastructure improvements, but also to invest more widely in schemes that will support the sustained economic wellbeing and competitiveness of the City Centre and wider region. Economic Context The Buchanan Quarter project will significantly contribute to the successful implementation of Glasgow s economic development objectives and indeed regional and Scottish level strategies. It will deliver regeneration, economic growth and jobs. It will also enhance the role of the City Centre as the heart of the metropolitan area and maintain Glasgow s strong position as a leading tourism destination in Scotland and the UK. Independent research also highlights that the project will strengthen Glasgow s position as the second retail centre in the UK, attracting additional spend from outwith the Country and wider tourism benefits for Glasgow, the West of Scotland and Scotland as a whole. The public realm and infrastructure works will improve City Centre connectivity linking the Buchanan Quarter and Style Mile area more effectively with Glasgow Caledonian University, the University of Strathclyde, the proposed City of Glasgow College, Glasgow s theatre district and Scotland s transport network through Queen Street Railway Station, Central Station and Buchanan Bus Station. These investments, which are contingent on TIF approval, are complimentary to other major ongoing investment programmes supported by the public sector and will augment the benefits of these, for example it will enhance the City ahead of the 2014 Commonwealth Games, further improving aesthetics, attractiveness and security, while C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 6 of 89
improvements to Queen Street Station will tie in with the 1bn investment being made by Transport Scotland and Network Rail through the Edinburgh Glasgow Improvement Project (EGIP). The but for TIF scenario is also considered and the business case sets out that in the absence of TIF funding for the public infrastructure works, the regeneration of the Buchanan Quarter would not proceed, and indeed would be unlikely to proceed for some considerable time, and the forecast economic benefits would not materialise. Further growth around the City, and outwith Glasgow would also be hindered, as a catalyst to kick-start wider development and economic growth in the region after the recent economic downturn would be lost. The Catalytic impacts of the project are of significance to the Council and cannot be underestimated. Significant private sector investment will demonstrate confidence in Glasgow s ongoing regeneration in a time of economic uncertainty. The Council will also utilise its Community Benefit approach to maximise opportunities for unemployed citizens and work to create construction opportunities for small and medium sized businesses. The investment in public realm and infrastructure will help unlock the development potential of other City Centre sites, and beyond, when development would otherwise be constrained. Successful delivery of the project is anticipated to unlock significant economic benefits for Glasgow and the West of Scotland. The 80m secured through TIF will leverage immediate private sector investment by the Buchanan Partnership (the Developer) of 310m representing a public: private investment ratio of 1:3.9. This ratio is likely to be exceeded once wider developments in the area are accounted for. As summarised at Table 1 below, the combined investment by public and private sectors as a result of TIF is expected to deliver a range of economic benefits including 1,486 jobs and 36.2m GVA per annum during the operational period and 3,660 person years of employment during the construction period. Table 1: Key Short/Medium Term Benefits over 2011-18 Construction Period Employment (person years) 3,660 Net additional floorspace (sq.m.)* 29,800 Operational Period Employment (Full-time Equivalents) 1,486 Operational Period GVA ( m per annum) 36.2 Public: Private Investment Ratio 1:3.9 *gross employment generating floor space delivered taking into account displacement C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 7 of 89
Infrastructure Investment The Council, in consultation with the Developer, has devised a schedule of public realm and infrastructure works which will both enable and maximize private sector investment in the Buchanan Quarter and make the most of the potential to deliver wide-ranging economic benefit for the City and beyond. A number of the core elements are expected to be completed ahead of the Commonwealth Games in 2014, further strengthening Glasgow and Scotland s image on the world stage. In pursuing these investments, the Council has identified a redline area from which the incremental increase in new domestic rates will be drawn and in which the public realm and infrastructure works so funded will be carried out. The Council is also committed to the wider benefit of TIF in demonstrating the potential to unlock development in the wider City Centre area and beyond, and indeed believes the project will act as catalyst for further development and economic activity in the region, both within and outwith Glasgow. Economic Impact The business case assesses the impact of the public realm and infrastructure works improvements and in particular assess these against the key areas of market failure that can be considered in justifying public intervention. The Council recognises that a proposal of this significance will, by its nature, alter and in some cases displace pattern sof activity and investment elsewhere, in the short to medium term. Based upon evidence from an independent economic impact assessment, such effects are however assessed to be more than offset by the positive and catalytic impacts of the development in enhancing the image and investment climate of the city centre and Glasgow more widely. This analysis has concluded that there is sufficient evidence of market failure to justify public intervention is justified, and this is further justified in net benefit terms due to the positive impact of an enhanced City Centre cultural, commercial and retail offer and its contribution to increased use and profile of the City Centre and Glasgow as a destination. The wider commercial development will secure new international retail brands and create modern format commercial and leisure floor space which will help Glasgow compete more effectively and enhance its status in the UK retail hierarchy. Indeed, it is expected that much of the new space will be taken up by retailers new to Scotland, further improving the offer and additionality of the project. The 185-221 Buchanan Street development (the Atlas site) - which is currently being delivered by Land Securities (50% of the Buchanan Partnership) is already 95% instructed or exchanged and has attracted a number of key retailers that are new to Scotland. In addition to its profile as a leading retail centre, the City also enjoys a strong reputation as a centre for the arts, culture and media. This was boosted by the City s designation as European Capital of Cutlure in 1990 and in the intervening years the City has enjoyed considerable success in attracting media companies and creative industries to locate in Glasgow. TIF will enable the Council to refresh and maintain this momentum by making possible a significant investment to upgrade and enhance the Royal Concert Hall, first delivered in 1990 as part of the Capital of Culture preparations. A refurbished and enhanced Concert Hall will be able to accommodate an in house orchestra (RSNO) so will be able to deliver new and increased activities, and is expected to generate increased footfall in this part of the city into the evening, which will also support the city centre retail sector s C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 8 of 89
ambition to deliver sustainable late-night opening. As it is becoming increasingly important to position city centres as visitor destinations, increased activity from the Concert Hall will compliment and support the incorporation of further leisure uses and extended opening hours for the proposed Buchanan Galleries extension, and other shopping areas, reinforcing the vitality and viability of the evening economy in Glasgow. Further, the Concert Hall will have a new iconic entrance on Buchanan Street that will provide full disability access, which is currently only available on Killermont Street. The inclusion of further civic, leisure and evening uses will reinforce the vitality and viability of the City Centre. Significant enhancements to Queen Street Station (made possible by the Buchanan Quarter development) and its surroundings will dramatically improve its role as a major arrival point to the City Centre and enhance the connectivity of the transport network in Scotland. Optimised parking, improved integration between trains, taxis and the Buchanan bus station will improve public transport participation in the City Centre. The increased integration and permeability created between the station and the surrounding City Centre will be a major benefit to this part of the city. It should be noted that Buchanan Partnership's successful tender submission to Network Rail (in respect of works to Queen Street station) is conditional upon TIF Funding approval. In the absence of TIF, the proposed extension to Buchanan Galleries will not proceed. As a consequence, the multi storey car park will remain in its current location and the expansion and associated improvement works to Queen Street Station will not take place. An indicative illustration of the proposed station entrance is provided below. Figure 1.1: Queen Street Station upgrade: Proposed frontage onto George Square C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 9 of 89
The scale of investment also sends a positive message to the private sector in Glasgow regarding its future potential and the public sector commitment at a time when investment has declined. Positive impacts are felt quickly in terms of changing perceptions due to the visible improvements and ability to deliver elements of the project within a short timeframe, increasing potential investor confidence. The improvements to the Buchanan Quarter development enabled by TIF, and associated uplifts in employment provides for the City of Glasgow the means of improving and enhancing this critical part of the city centre in a comprehensive and transformational way to deliver real and lasting benefit; the alternative appears to be limited and piecemeal development, if any, within an uncertain, and potentially much longer, timescale. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 10 of 89
Financial Analysis TIF allows for incremental NNDR to be retained by the Council over a 25 year period to fund borrowing costs arising from Council investment. Borrowing costs associated with proposed capital investment of 80m are circa 5.85m per annum. The estimated gross incremental rates due from the development is 9.6m per annum. Annual incremental NNDR (net of displacement and allowing for void rates income) which can be retained by the Council as a result of this development is estimated to be 6.1m. The Council has retained PWC and URS to advise on these issues, who have calculated a displacement factor of circa 30% for the purpose of the business case. This is based on a detailed assessment of the likely range of uplifts in City Centre development - that will be taken forward or occur sooner as a result of the scheme as well as displacement effects on the city centre or on out of town facilities within the Council area. With regard to programme, 185-221 Buchanan Street (Atlas) commenced in March 2011 with retail trading scheduled for March 2013. Following consultation with the Scottish Government, the NNDR from 185-221 Buchanan Street will be excluded from the NNDR calculation used to finance the TIF as the development was deemed not to meet the TIF but-for test. However the redevelopment of 185-221 Buchanan Street represents only the second new development start in the UK since the economic downturn and in itself represents a positive impact on the city centre and a vote of confidence by the private sector. The Developer (Land Securities) has commenced the redevelopment of the Atlas site. For those works directly procured by the Developer, the Developer will carry both the initial cost and risk of delivering the public realm and infrastructure works with repayment by the Council only occurring on successful completion of the works. The additional benefit of this approach is that once the works have been completed there is greater certainty of sufficient incremental NNDR becoming immediately available to repay any borrowings. Risk As with any development of this scale there are a number of potential risks that may arise and significant steps are being taken to mitigate against and manage these by the Council. For instance, the Developer will not proceed until 40% of the Buchanan Galleries extension has been pre-let (by income). Although at this level (the NNDR after displacement) is not sufficient to fund the total borrowing, it is at a level which mitigates the risk of early drawdowns by the Council. The Council also recognises that such a position is commercially realistic and in-line with market expectations. Market respect for the expertise of the Developer in managing retail centres is significant and its commercial interest in a successful centre is complimentary to the interest of the Council. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 11 of 89
The Council s base business case takes a prudent view of voids and bad debts arising from the development and anticipates repayment of Council borrowings within the allowed 25 year TIF period. The Developer is obliged to forward fund the public realm and infrastructure work delivered by the Developer, and the Council will have an obligation to pay for these only on completion. Such an approach will allow the Council to manage or mitigate many of the risks associated with the delivery and operation of the project, thereby improving its risk position and the delivery mechanics. The Council has also been pro-active in considering potential issues such as State Aid. The Council is confident that this project is State Aid compliant and meets the requirements of the procurement regulations, the Public Contracts (Scotland) Regulations 2006. The Developer will not benefit from any development profit arising from these works. Private and public partners have broadly welcomed the proposals. The Council is confident that the qualitative economic and social benefits to the City of the implementation of the Buchanan Quarter TIF scheme are robust. Delivery and Governance The key terms of the proposed Memorandum of Understanding between the Council and the Developer is in the stage of final negotiation and a summary is attached as appendix G. The principles of fairness and openness are integral to the project. A Project Strategic Steering Group, comprising senior representatives from the Council, Scottish Futures Trust and Scottish Government will be established to maximise social and economic impact for Glasgow and Scotland. In addition a Project Advisory Group will be established with involvement from both the Council and the Developer to monitor progress on project delivery and ensure costs and project timescales are being progressed on an open book basis. Basis of Approval The Council, through this Business Case, is seeking approval, from Scottish Government, to the right to retain the incremental NNDR created by the TIF (net of displacement) in support of the project borrowings. Next Steps Following submission of this business case it is anticipated that a decision by the Scottish Government will be made in late 2011. If the City Council is successful, thereafter and simultaneously the Council and Scottish Government will enter into an arrangement where-by the ring fenced level of NNDR permitted to be retained by the Council for the specified period is agreed and the Council and Developer will negotiate the terms of the Funding Agreement. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 12 of 89
1 Introduction This Business Case proposal has been prepared by Glasgow City Council (the Council) to utilise Tax Increment Financing (TIF) to facilitate the development of the Buchanan Quarter, by progressing a range of public realm and infrastructure investments within Glasgow City Centre. The Council has prepared this business case with support and cooperation from PwC and the Buchanan Partnership (comprising Land Securities PLC and Henderson Global Investors), hereafter referred to as the Developer. The Council proposes the use of TIF for essential public realm and infrastructure investment to enable the proposed Buchanan Quarter to successfully proceed. These enabling infrastructure works form an intrinsic part of the wider commercial and non-commercial development, which will be undertaken by the Developer and the Council. In the absence of the proposed TIF, the regeneration of the Buchanan Quarter will not be secured and the potential commercial, economic and social benefits will be lost. The wide-ranging economic benefits, which will be secured across the district, including the catalytic impact, are detailed in section 4. The Council Executive Committee gave approval in January 2010 to work with the Scottish Futures Trust (SFT) to prepare a business case for TIF. In the intervening period, extensive discussions have been held with the Developer and SFT on the context of the TIF proposal, the schedule of enabling works, asset creation and repayment mechanisms. Meetings have also been held with the Scottish Government State Aid team. Following SFT s presentation to the Scottish Government of an initial proposed draft business case in February 2011, a number of clarifications were sought by the Scottish Government and over the intervening period the Council, the Developer and associated personnel have remained in close contact with SFT and Scottish Government in order that the issues under discussion (including state aid and procurement matters) could be resolved. These issues also included the necessary site start of the Atlas development at 185-221 Buchanan Street in mid 2011. Consequently, a revised business case was approved by the Council s Executive Committee on 27 October 2011. Each section of the business case has been revisited in light of the exclusion of Atlas from the TIF scheme and appropriate changes applied. This has included a revision of the infrastructure investment plan and a full update of the financial projections, and accompanying sensitivities, to inform the Council s decision-making process and assess the viability and risks associated with the project as a result of Atlas being excluded. This revised financial analysis is presented in Section 5. Consideration has also been given by the Council as to whether the exclusion of the Atlas site has a material impact on the conclusions of the Economic Impact Assessment undertaken by URS. In discussion with URS, the Council s financial advisors PwC and the Developer, it has been agreed that the conclusions of the analysis and consultation process remain materially unaffected with regards to the overall impact of the TIF, including displacement, with Atlas still going ahead albeit without TIF. However, in line with best practice the key direct outputs claimed by the public sector s intervention through TIF have been adjusted downwards to reflect the exclusion of Atlas. Section 4 therefore refers to the original URS report which considers the Buchanan Quarter as a whole but makes clear the impact of excluding Atlas on key outputs. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 13 of 89
The remainder of this business case explains how the Buchanan Quarter proposals will proceed. It demonstrates the case for TIF as part of these proposals, including the economic analysis, financial analysis, explanation of risk apportionment and delivery processes. This comprehensive process will successfully deliver the Buchanan Quarter development in accordance with guidance provided by SFT on behalf of the Scottish Government. 1.1 Project Overview The Buchanan Quarter is a key part of the Council s City development strategy and a core element of the Regional Structure Plan, Joint Economic Strategy and City Centre Action Plans. The development also delivers at a national and regional level, supporting factors such as the Scottish Government s Strategic Objectives which have the overall aim of delivering sustainable economic growth. The regeneration of the Buchanan Quarter needs to be viewed historically against the redevelopment of this part of the City Centre. Without Buchanan Galleries, there would have been no Glasgow Royal Concert Hall, delivered for the European Year of Culture 1990. The Buchanan Galleries has been a major driver for change in the area, contributing to the retail core and its spine in Buchanan Street, central to planning policy over the last 30 years. The Council is partnering a major investor with funding that is both able and willing to take the Buchanan Galleries and Quarter into its next phase of development. This will give certainty to future plans for the area and assist the Council to bring forward its enhanced package of works, which includes the Glasgow Royal Concert Hall refurbishment. This will have a major impact for the 2014 Commonwealth Games. The City Centre is the economic driver for the City. Therefore the Buchanan Quarter, due to its location on and around Glasgow s principal retail street, makes the TIF proposals for this area a very attractive proposition for the Council to support as its first TIF project in what could become, with support from SFT, the start of a new investment vehicle for securing other large scale proposals. The Buchanan Partnership has been selected as development partner by Network Rail through a public procurement process, for the redevelopment of the vacant site adjacent to Queen Street Station. Both Queen Street Station and the adjacent site are integral to the successful delivery of the Buchanan Quarter Vision and a transport strategy predicated on a reduction of short stay car parking and a reliance on sustainable public transport. The scheme is however contingent on the TIF being approved. Therefore the Council is promoting the Buchanan Quarter TIF as its first TIF in Glasgow as its core proposals are concerned with securing wide ranging investment in enabling infrastructure to facilitate regeneration, economic growth and social benefits both within Glasgow and beyond. The Council has confirmed its willingness to support other TIF applications assuming that their proposed schemes can meet Scottish Government guidance. The key public sector enabling infrastructure has been identified as follows: C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 14 of 89
- Public realm and infrastructure improvements. New public realm will be provided to George Square, North Hanover Street, Killermont Street, West Nile Street, and Concert Square - Linkage to Education District. Public realm and infrastructure improvements will be introduced to Cathedral Street to assist in delivering the proposed Quality Bus Corridor, improving accessibility to Strathclyde University, Glasgow Caledonian University, and the City of Glasgow College. Additionally the underpass at Cowcaddens Road will be upgraded, providing clean and safe access for Glasgow Caledonian University. - Enhanced Royal Concert Hall. In order to accommodate the Royal National Scottish Orchestra, the Royal Concert Hall will be extensively refurbished and extended to increase national and international recognition and patronage. A new entrance atrium to the Concert Hall will also be delivered, creating a statement entrance at the north of Buchanan Street with full disabled access. These works will enable further economic impact through a substantial improvement to the city centre s cultural offer which will encourage employment creation, more visitor trips and spend within the city centre, and by working in conjunction with the retail sector the completion of the Concert Hall works will assist with greater dwell-time and the wider strategic objective of linking the city centre day and night time economies. - Highway improvements/traffic management. The strengthening of the Cathedral Street bridge will enable unrestricted use of the structure by traffic allowing Cathedral Street bridge to be used as an alternative east/west route thereby making the closure of George Square a possibility. Subsequently, public transport could be truly reinstated and bus stops reopened. - New public realm around both Buchanan Bus Station and Queen Street Station: these transport modes serve over 35 million people per annum, a proportion of which are visitors to the City. The new public realm will enhance the arrival experience, user experience and general public perception of the City. - Pedestrianisation of Dundas Lane: it is proposed that taxis are relocated from Dundas Lane allowing the creation of a new civic square and improved and safer pedestrian access. Such infrastructure has been identified through a series of workshops and discussions between the key partners and was chosen on the basis of maximising economic growth, fit for purpose, ability to unlock greatest level of growth and consistent with Glasgow s economic strategy. Alongside these works, the Developer will undertake the construction of a new retail and leisure extension to the Buchanan Galleries Shopping Centre. There is no public sector intervention in the delivery of the commercial element. The Developer will also undertake construction works relating to the provision of new optimised multi-storey car parking (with a reduction in the total number of spaces) in conjunction with improvement works at Queen Street Station. In addition the investment in the Buchanan Quarter will also enable further private sector investment and support growth in the C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 15 of 89
wider City and beyond, as confidence returns to the market and the economic effects are felt outwith the Buchanan Quarter. These Catalytic impacts are discussed further in Sections 3 and 4. A plan highlighting the key development zones within the Buchanan Quarter is shown below. Figure 1.2 Key development zones within the Buchanan Quarter are highlighted below. The TIF does not provide any financial support toward the commercial elements. TIF funds public infrastructure assets only. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 16 of 89
Without TIF, the Buchanan Quarter scheme will not proceed. An immediate financial investment in Glasgow city centre of approximately 310m will be lost as will the creation of 1,486 jobs. In addition, substantial and, long lasting regeneration and economic benefits would be lost over both the short term, during construction, and longer term, when the Buchanan Quarter scheme is completed and expected to act as a catalyst for further investment both within and beyond the City. In addition to providing a clear and reasoned economic case for TIF, the Council has worked closely with the Developer to put in place a structure under which the risk of development will rest properly with the private sector. Therefore, TIF funding will only be made available upon the successful completion of agreed works in accordance with the agreed specifications and programme. As a consequence, the Council will draw down the initial prudential borrowing backed up against the NNDR which will be generated by the Developer achieving 40% pre-letting, thereby mitigating the risk for the Council. This business case is made on the basis that Glasgow City Council is satisfied that the level of predicted economic displacement resulting from the Developer s proposals will not impact on the Council s ability to fund the TIF through net additional NNDR. Stakeholder consultation has also been undertaken to endorse the Council s business case proposals. Details of both the economic case and wide ranging stakeholder consultation are set out later in this business case document. 1.2 The Case for TIF as a Preferred Funding Mechanism The Council is experienced in facilitating development and regeneration across the City through the utilisation of various financial arrangements. Notable examples include partnerships with Scottish Enterprise and the private sector to de-risk and deliver major investment in the International Financial Services District, the regeneration of the Merchant City and the creation of the Digital Media Hub and the wider regeneration of the Pacific Quay area including the relocation of BBC Scotland and STV. In short, the Council has a demonstrable track record of delivering City regeneration. However, in the current economic climate, it is imperative that the Council considers and embraces new funding mechanisms. In these challenging economic times, the Council is committed to working with Glasgow Chamber of Commerce, Scottish Enterprise and a variety of public and private stakeholders to ensure that the City can continue to be one of the most dynamic, economically competitive and attractive city centres in Europe and the best in the UK outside of London. Delivering the Council s ambitious step change proposals will be partly achieved by private sector enterprise. The overall financial environment, more particularly the investment markets within which major commercial development schemes can be financed and funded are such that there is no foreseeable prospect of the Buchanan Quarter scheme being successfully secured other than with the benefit of TIF to support key infrastructure and public realm works which are essential to the international competitive and successful well-being of Glasgow City Centre. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 17 of 89
The Council has considered very carefully (with guidance provided by SFT) how TIF can deliver the enabling infrastructure works in accordance with a firm development programme, without undue risk to the public sector. Properly constructed, TIF will provide the Council with the necessary mechanism to make available significant public sector funding to deliver the required enabling works and infrastructure, which forms part of these proposals. At present, the Council does not believe there is any other funding stream available to it, which delivers the same major outputs, within the proposed timescales, on terms which would be acceptable and affordable to the Council in the current economic circumstances. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 18 of 89
2 Context & Background to the Project Retail makes a significant contribution to Scotland s economy, is a major employer, and provides a key attraction for tourism. Glasgow is currently ranked the number one retail destination in the UK outside the West End of London and, with continued private sector inward investment, is predicted to retain this position for the next 10 years. There are over 1,500 shops in the City Centre, which generate 2.4 bn per annum retail sales turnover. The City s core retail offering comprises Sauchiehall Street, Buchanan Street, Argyle Street and Ingram Street The Style Mile - with many smaller boutique outlets established in the Merchant City and the West End. Glasgow s Buchanan Street is recognised as one of Europe s most sought after shopping locations. It is important that the City continues to take action to ensure that it maintains its competitive advantage as other cities throughout the UK seek to emulate its success and compete for tourism, retail and leisure economic activity. Already, economic and development activity over the past 5 years in competing cities has placed pressure on Glasgow as the preferred retailing destination outside London s West End. In the absence of the Buchanan Quarter development it is likely that Glasgow will slip down the UK s retail ranking and that additional economic activity from outwith Scotland will be lost. The total Buchanan Quarter scheme, including 185-221 Buchanan Street (which is excluded from the NNDR calculation) will create an additional 55,000 square metres (592,000 square feet) of prime retail and leisure accommodation in the heart of the City Centre and will act as a clear catalyst to confidence in the City Centre and beyond, which in turn will result in other commercial developments being brought forward elsewhere in the region. Maintaining Glasgow s retail strength means investing in the product, improving and protecting existing City Centre facilities and finding ways of differentiating Glasgow s retail offer from competitor destinations throughout the UK. Retail is also a key catalyst to wider commercial, leisure and visitor activity that benefits the City Centre and Scottish economy and sustains Glasgow s vibrancy, vitality and viability. As highlighted in the DTZ/CBRE Leasing Strategy Report in appendix A, there is currently in excess of 97,000 square metres (1,048,100 square feet) of retailer requirements for Glasgow City Centre (including restaurant demand the total requirement is 115,995 square meters [1.248.600 square feet]). The new accommodation that will be provided within the Buchanan Quarter will meet retailer requirements, most of which can only be met in modern, newly constructed City Centre stock. It will be further noted from advice provided by GVA Grimley, as detailed in appendix B, that this level of requirement cannot be satisfied by current provision of modern retail accommodation in the prime retail pitch. The Developer will utilise its strong track record of developing complex mixed use developments throughout the UK to target retail brands from across the globe not currently represented in Scotland. This track record has been demonstrated in the neighbouring 185-221 Buchanan Street where several new retailers to Scotland have already agreed terms. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 19 of 89
The Council is committed to a stronger and more commercially robust City Centre and fully supports developments that fully integrate with adjoining commercial, cultural and educational uses, supported by sustainable transport. Customer-led opening hours, new and improved public realm and infrastructure, active management and securing high quality City Centre uses which have due regard to issues of security and good neighbourly practices will ensure that an ever stronger retail and leisure quarter comprising Buchanan Street, Merchant City and the West End will be a key and successful part of the strategic City economy for the foreseeable future. Indeed, the Style Mile is seen as a key part of the heart of the City Centre. 2.1 Local, Regional and National Policy Objectives The Buchanan Quarter is a key part of the city development strategy, a core element of the Council s Regional Structure Plan, Joint Economic Strategy, City Centre Action Plan and is aligned to the Scottish Government s Strategic Objectives. The case for new and improved and extended retail provision in the city centre has been reaffirmed by independent cumulative retail impact advice provided to the Council in 2009. It is particularly important to note that Halcrow made a number of key observations that are relevant to the Buchanan Quarter scheme: I. There is pressure from a number of out of city retail development schemes across Glasgow. II. III. IV. In addition to the recently completed extension to the St Enoch s shopping centre, there are also proposals for new development at Glasgow Harbour. If all out of city centre development proposals were to be implemented there could be considerable impact on the vitality of the City Centre. The report recommended that the Council should take a precautionary approach to out of city centre development and undertake more stringent approach to maintaining and strengthening the retail character and performance of the City Centre retail area and the viability of existing centres. V. Proposals for out of city centre development should only be considered where it could be clearly demonstrated that there would not be an unacceptable impact on a long term vitality and viability to the City Centre retail offer. VI. Halcrow advised the Council that it should make a renewed commitment to the role of the City Centre as a prime retail asset, which serves both the City region, and beyond. VII. It recommended that over the next 3 to 5 years, there should be continuing development initiatives and policies that will ensure the long term vitality and viability of the City Centre retail offer. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 20 of 89
VIII. Competition for economic well being between cities continues to be intense. It suggests that there is evidence from comparative city analysis that there is renewed focus on the quality of city centres and the retail offer as a prime asset. Investment in public realm and infrastructure are key considerations in maintaining a city s vitality. In summary, the Buchanan Quarter proposals, following on from the recent extension of the St Enoch s Centre by Ivanhoe Cambridge and the development of 185-221 Buchanan Street by Land Securities (50% partner in Buchanan Partnership) represent a positive and proportionate response to the need to maintain the precedence of the City Centre as the prime retail area. Local authorities are consistently being challenged to safeguard the distinctiveness and attractiveness of the prime retail offer. These are key matters for the Council to consider in order to ensure that Glasgow City Centre maintains its competitive advantage and brings additionality and benefit to Glasgow and Scotland. 2.2 Glasgow 10 Year Economic Development Strategy Glasgow published its 10 Year Economic Development Strategy in November 2006. From this report, it will be clear that the Council is committed to a number of detailed themes which will provide a clear direction for the future. There are seven step change themes which require special focus and leadership over the 10 year life of the strategy. These comprise: I. Build a metropolitan core II. III. IV. Education at the heart of the economy A culture of entrepreneurship Glasgow and Edinburgh collaboration V. Leadership in strategic areas regeneration VI. Provide work for those without VII. Secure class one international positioning The Buchanan Quarter scheme will make a fundamental contribution to addressing these important themes. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 21 of 89
I. Glasgow City Centre is Scotland s largest centre of employment and the main transport hub for the West of Scotland. For residents and visitors alike, it embodies Glasgow as a place and increasingly as an economy. By any measure, the metropolitan core has been central to the economic development of the City and the region and a successful transition towards a more knowledge based economy. In order to manage a step change in the core s performance and exploit the environmental sustainability of the City Centre, the Council will work closely with private sector partners and build on its committed plans and policies. II. Supporting education is an equally important commitment. Glasgow will not flourish without better-educated and skilled people and more innovative and successful companies. The Buchanan Quarter will provide the linkages which are necessary to better integrate Strathclyde University, Glasgow Caledonian University, and the City of Glasgow College into the heart of the City Centre. This will help to further promote the City as a focus for learning with the benefit of facilities and amenities which promote growth and well being. Developments of new and improved public facilities encourage confidence and investment which will sustain and improve opportunities for students in both the Further and Higher Education sectors. Competing for enrolment to Further and Higher Education courses is actively supported by the Council. The Higher Education sector is vital to the City s international competitiveness. The success of the education sector underpins the City s cultural and social cosmopolitanism. The Buchanan Quarter will make an important contribution to this. III. Developing Glasgow s entrepreneurial business sector is key to the City s future economic success. The Council s partnerships with companies such as Land Securities and Henderson Global Investors provides some of the solutions to creating business opportunities and removing barriers to allow people to better exploit their creativity and entrepreneurialism. Developing new and better quality commercial premises will provide the region with the skills and training to successfully create new businesses. Projects such as the Buchanan Quarter provide individuals, business organisations, education and public sector partners with the opportunity to respond to clear employment opportunities in key sectors. IV. Glasgow and Edinburgh provide one third of Scotland s GDP and jobs. The importance of these two Cities is growing too. Glasgow and Edinburgh Collaboration will deliver a wealth of shared benefits. This collaboration is focused on improving city connectivity, promoting the delivery of High Speed Rail to Scotland s two major cities and strengthening key economic sectors. In short, the two cities are committed to working together to demonstrate regional scale. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 22 of 89
The Buchanan Quarter is integral to the successful implementation of the Edinburgh/Glasgow Improvement Plan being undertaken by Network Rail. The redevelopment of the North Hanover Street site will accommodate a new railway platform for the EGIP programme as well as a wider refurbishment of the station entrance area and environment, both of which will improve customer experience. V. The Council has a tradition of leadership. This was demonstrated on a world stage by successfully securing the right to hold the Commonwealth Games in 2014, This TIF proposal demonstrates both a commitment to securing the best possible public facilities and amenities, but also a proactive approach to considering and, if appropriate, entering into new and innovative financial structures to achieve these objectives. The proposed TIF will facilitate investment of some 25m by June 2014, ahead of the Commonwealth Games with a further 55mby project completion. VI. A key objective of the City Council is to address the very many challenges of worklessness. The Buchanan Quarter is a critical response to address the challenges posed by unemployment, economic inactivity and consequential dehabilitating impact which worklessness has on families and the wider community. This is a critical consideration in the economic case set out in more detail later in this business case document. The regeneration of the Buchanan Quarter presents the opportunity to secure new jobs (short term and long term) as well as provide a skills training legacy. The Developer is committed to promote the Council s community benefit programme. Economic analysis undertaken by URS concludes that the Buchanan Quarter scheme will create 1,486 net additional full time equivalent jobs once fully completed and 3660 person years of employment during the construction phase. VII. The Council is committed to Glasgow maintaining its strong tradition of internationalism. Glasgow must compete and learn from other major UK and international Cities. Competition is particularly fierce in the conference and tourism market where Glasgow has shown it can compete on an international basis. Glasgow has an opportunity to strengthen its unique cultural and heritage offer through investment in its Royal Concert Hall, new and improved exhibition and conferencing facilities and better quality associated development, all of which form an integral part of the Buchanan Quarter proposals. Alongside this investment, refurbishment of essential areas of public realm and infrastructure, way-finding, walkways, meeting points, pedestrian routes and transport gateways will enhance the city s overall attractiveness and present the city as a safe, secure, modern, vibrant and accessible place to visit, work and live in. 2.3 Regional Strategic Fit At a regional level, the approved Glasgow and the Clyde Valley Joint Structure Plan (2000) identifies Glasgow City Centre and the City s major town centres as renewal priorities and areas to be safeguarded. The 2006 alteration of the plan takes this further by strengthening its approach to the City Centre. This includes focusing on the metropolitan role of the City Centre as the heart of the conurbation and the central component of the metropolitan corridor of growth as reinforced in the 2006 alteration of the plan. The City Centre therefore sits perfectly within this area of planned C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 23 of 89
economic growth, identified in the 2006 alteration. This fully supports the international aspects of the City covered in 2.2 above whereby retailing clearly supports the visitor experience of the City s cultural and historic offer. 2.4 Scottish Government Strategic Objectives The development supports the Scottish Government s five key strategic objectives and SPP8. The Council recognises that the Scottish Government has five stated objectives that underpin its core purpose: wealthier and fairer safer and stronger smarter greener healthier The Buchanan Quarter is a City Centre regeneration development that has retail, leisure and residential components and with TIF enables the creation of new public realm and infrastructure assets as well as enhancements to the Royal Concert Hall and key transport facilities. Due to the national importance of our core cities, the scheme is expected to have national reach and benefits. The Developer and the broader business base, through catalytic benefits, will have the opportunity to generate wealth that will consequently benefit employees and communities. The development will also attract new income to Scotland from potential inward investment and tourism. A new city quarter will include enhanced public spaces and infrastructure and provide improved permeability for both the daytime and evening users. This will increase safety and attractiveness of one of Scotland s main visitor destinations. The development will provide improved linkages to key academic institutions through new public realm and safe accessibility to public transport. This will increase the attractiveness and accessibility for both local and foreign students. In addition, community benefit measures, including the promotion of apprenticeships, will also be adopted to provide skills and opportunities for new entrants. As the development looks to link and maximise the existing City Centre concentration of public transport services, as well as reduce the amount of car parking, there is a clear intent to encourage modal shift to sustainable transport options. The Developer also has a strong track record in progressing sustainable development and this will be applied to the Buchanan Quarter. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 24 of 89
The healthier priority is addressed as the scheme provides new facilities, creates spaces and introduces homes that will strengthen the local community and also wider region due to Glasgow s position as the leading retail destination in Scotland and number two centre in the UK. The development will improve Scotland s cultural offer, through an enhanced Royal Concert Hall and new cinema facilities. 2.4.1 SPP8 Town Centres and Retailing (2006) SPP8 states that the Scottish Government is committed to securing vital and viable town centres and that this involves promoting and enhancing town centres by focusing appropriate growth and development in them. It sets out a range of policy objectives for centres: promote distinct, competitive places and encourage regeneration enable access to a wide choice of shopping, leisure and other services and for gaps and deficiencies to be remedied improve the physical quality and sustainability of our town centre environments support development in accessible locations or in locations where accessibility can be improved Again, the Council is confident that the Buchanan Quarter not only meets these policy objectives locally, but due to Glasgow s prominence in the UK retail hierarchy, provides real benefit to the whole of Scotland, both meeting national economic objectives (as outlined in section 4) and supporting Scottish Government strategic objectives. 2.5 Key Stakeholder, Landowners and Partners The Council is working closely with a number of partners to deliver the Buchanan Quarter. Overall the proposals will join parts of the City Centre, which until recently were seen very much as distinct neighbourhoods. The TIF will allow these areas to realise new connections, with the benefits of the TIF and its associated growth felt beyond the infrastructure delivered. The Council has already supported an agreed funding application from RSNO to Scottish Government, which will create new facilities at the Royal Concert Hall to house Scotland s national orchestra. It is anticipated that this initial investment will be commenced when all necessary funding is secured. The proposed Buchanan Quarter TIF will enable these works to be successfully completed on a comprehensive scale. In the absence of TIF only a proportion of the planned works would be completed. The Council is also working with Network Rail, ScotRail and following a competitive tender process the Developer has been successfully selected as development partner to deliver new and improved railway station facilities at Queen Street. The Council is fully supporting Network Rail s Edinburgh Glasgow Improvement Programme proposal, which will improve connectivity across central Scotland and beyond. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 25 of 89
The Council will continue to work closely with Strathclyde Partnership for Transport to successfully secure the wide ranging benefits to be gained from its joined up journeys initiative. The regeneration and development of the Buchanan Quarter will improve connectivity between Buchanan Street Bus Station and Queen Street Station, enhancing customer experience and providing safe and secure passage between two key transport nodes. The Council is liaising with Strathclyde University, Caledonian University and the City of Glasgow College to deliver bigger, better and improved education facilities in the heart of Glasgow City Centre. Better integration of these educational facilities with the City Centre will be critical to their continuing success. The Buchanan Quarter will address many of the current deficiencies in access to public transport including the provision of new and improved linkage between the City Centre and the university district, and improved connectivity between the bus station and the Queen Street railway station. The Buchanan Quarter will also provide a platform upon which Strathclyde University, Caledonian University and the City of Glasgow College can bring forward their own masterplan proposals for future improvement to the university campuses. In addition to these stakeholders, The Developer will work alongside Glasgow Chamber of Commerce and Glasgow City Marketing Bureau to ensure that the Buchanan Quarter provides successful realisation of their ambitions to secure a strong and more vital and viable City Centre. 2.6 The Suitability of TIF Funding The Council has identified that, in the absence of TIF, the current Buchanan Quarter proposals will not be taken forward because: Investment in the public infrastructure identified under TIF will not be supportable through the private sector in the absence of TIF the level of investment required in public infrastructure works would impact the internal rate of return on the development to the extent that the current proposals would not be sustainable No other funding from public sector sources is currently available to support such infrastructure and regeneration investment In short, therefore, not securing TIF will result in the Buchanan Quarter proposals not being brought forward and the core retail area of the city stagnating for the foreseeable future and becoming increasingly uncompetitive relative to other city centres in the rest of the UK. This may in turn impact Scotland s attractiveness as a city break and conference / tourism destination and have a knock on effect on the performance of the wider region. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 26 of 89
3 Infrastructure Investment Plan and Incremental Revenues 3.1 TIF Red Line Area 3.1.1 Definition The purpose of the red line area as outlined in the SFT guidance Tax Incremental Financing in Scotland and Tax Incremental Financing in Scotland Increment Capture Mechanism Pilot Schemes is to identify the TIF boundary within which: Any up-front enabling infrastructure or assets will be delivered Uplift of economic activity as a result of delivering the assets is expected to be greatest Incremental revenues will be assessed and captured during the operational period of the TIF Consideration of how to define this area for the Buchanan Quarter project has been informed by the results of the economic impact analysis, which is outlined in more detail at Section 4, and also by practical considerations in relation to the administration and monitoring of the TIF. As an outcome of this, and as illustrated at Fig 3.1 overleaf, it has been agreed with SFT to define a TIF boundary which meets the requirements set out in their guidance through reference to two areas as part of the business case: A black-line area which is similar in nature to the red-line area as traditionally defined in the TIF guidance representing the area of direct economic impact within which an uplift in business rates is considered most likely to occur as a result of TIF A red-line area which in the case of the Glasgow TIF, is an area within the black line that is drawn more tightly around the Buchanan Quarter Developments and key routes into and out of the Quarter to represent the area of actual rates capture and within which the financing of TIF and any initial expenditure will be managed and met C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 27 of 89
Fig 3.1 The proposed red line and black line areas C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 28 of 89
The adoption of such an approach recognises that, from a financing perspective, the advantages to both the Council and Scottish Government are apparent from drawing a very tightly defined red-line include: Ease of management of revenue collection Superior risk management through collection of rates from a clearly identifiable landlord Improved monitoring of the project through more focussed collection of the revenues Easier calculation of the baseline for purposes of the capture mechanism Simplified administration of revenue collection and retention The work undertaken by URS also reflects these distinctions (between the black and red line areas). Their analysis of a retail demand and supply model for Glasgow overlays the impact of the new floorspace delivered in the Buchanan Quarter as an immediate consequence of TIF (i.e. within the red line area) on the remainder of the City (i.e. areas outwith the red line area). The URS approach recognises that, from an economic impact perspective, there will be a range of positive and negative impacts across the city. In particular, their analysis identified a range of catalytic benefits comprising potential uplift in development as a result of TIF, primarily within the black line area. In particular they identified a number of known development schemes within the black line area that were assessed as being more likely to proceed as a result of the regenerated Buchanan Quarter and city centre improvements enabled by TIF. The importance of including these catalytic uplifts relates to identifying the appropriate displacement effect and consequent net business rate uplift to be applied in financing the TIF infrastructure. As would be expected, outwith the red line area some level of displacement will also occur at existing retail and other outlets (as consumers switch their expenditure to the Buchanan Quarter) and thus may reduce overall business rate levels. On the other hand the uplift in development, as illustrated in the black line, will add to the existing pool of NNDR rates. The black line area, therefore, captures these latter uplifts and as detailed in the economic impact section these have been offset against the former potential displacement levels elsewhere in the City and wider region to estimate the overall net displacement associated with the Scheme. The application of a single displacement percentage which reflects these factors ensures that an appropriate average level or revenue is captured within the red line area. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 29 of 89
3.1.2 Description It can be seen that the proposed redline area extends from Killermont Street to George Square and otherwise forms the boundary of Buchanan Street and North Hanover Street. The redline boundary also includes the public highway comprising Cathedral Street and Buchanan Street. The redline area includes George Square insofar as it comprises the public realm and infrastructure. Beyond the redline, there is a wider area within which the Council expects TIF to secure wide ranging catalytic benefits. It can be seen that the Council is promoting TIF on a basis that improved pedestrian access will beneficially connect the wider area including the Theatre district and the City Centre University district. Both are areas where there is a need to secure regeneration and development and both are areas where there are development projects pending, albeit on a less advanced basis than Buchanan Quarter. The beneficial upgrading and improvement of Buchanan Street as a major pedestrian thoroughfare will also assist with securing new retail and leisure operators thereby enhancing the profile of the City Centre. Over time, this will strengthen and enhance the Style Mile and deliver catalytic improvements to bring forward complementary development proposals which will also strengthen the vitality and viability of Glasgow City Centre s tourism, retail and leisure offer. The Council has approached the preparation of the TIF redline area on the basis it can contemplate further TIF schemes in the future elsewhere in the city. The Council has concentrated the redline around properties which will be directly improved through the TIF capture mechanism and included properties which will remain outside but nevertheless benefit from the TIF proposals. The Council believes that it is a strength of this TIF proposal that the redline boundary is drawn as tightly as practicable whilst recognising the wide ranging catalytic benefits which will be secured across the wider city region. The Council is also proceeding with the proposed redline boundary on the understanding that once the repayment of debt has been completed, and prior to the expiry of the proposed 25 year TIF agreement term, and the Council will continue to have the beneficial use of 50% of the incremental NNDR from within the redline area. The prospect of this will ensure it can continue on-going investment and infrastructure both within and outwith the redline boundary. The Council understands from its discussions with SFT that this is an acceptable assumption. 3.2 Overall Infrastructure Requirements In accordance with guidance provided by SFT, the Council can confirm its overall infrastructure requirements. These works are proposed due to their collective potential to significantly enhance the tourism attractiveness of Glasgow, to increase the accessibility, permeability and user experience of key public transport facilities and public areas, to improve vehicular flow, and to increase the prominence and provide improved disabled access to Glasgow Royal Concert Hall. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 30 of 89
The Council can confirm that the enabling works comprise: I Works comprising the Royal Concert Hall entrance: The Concert Hall is now 21 years old and needs repositioned in terms of its civic importance to the City. This can be achieved via the proposed internal and external works, but significantly the addition of a new facility for the RNSO will reinforce this complex. Looking across the wider city centre, the planned refurbishment and involvement of Scottish Opera in the Theatre Royal is another example, alongside the Concert Hall complex, of increased patronage of such civic buildings. Taken in conjunction with the renaming of the RSAMD to Royal Conservatoire, this further reinforces the significance of the cultural industries in this part of the city centre. This is also supported by the ease of accessibility to this area either by car, bus station, Underground, and two mainline rail stations. This places the Buchanan Quarter development in an almost unique location for increased footfall particularly in relation to the cultural industries immediately adjacent and in the nearby locale. Improving the cultural dimension and offer within the city will create more employment opportunities, visitor trips, visitor spend, and longer dwelltime. It will help to consolidate and grow the city centre offer of retail, leisure and culture which currently has a daytime focus so is at a competitive disadvantage from other UK and European city centres, and out-of-town malls. The extension of the Concert Hall, will deliver additional rehearsal space and principal premises for RSNO, the internal refurbishment of the Concert Hall, the removal of the existing external steps and the replacement of these with an enclosed glass atrium with sweeping staircase and lift. The glass atrium acts as a beacon on Buchanan Street announcing the Concert Hall to the City. As well as musicians spaces and a new home for RSNO, the whole project will deliver a vibrant public area and auditorium accessible to the general public (including full disabled access which currently does not exist) both as a cultural and social destination in itself and as an additional pedestrian route between Buchanan Bus Station and C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 31 of 89
Buchanan Street. The overall aim of the project is to arrive at a position where Concert Hall becomes an extension of Buchanan Street providing a public space with meeting places, cafes etc and thereby creating a vibrant, hard working building full of life and colour throughout the day and in the evenings. II Strengthening Cathedral Street bridge and associated public realm enhancement: As there is currently a safety contraflow and the existing public realm is extremely poor there is an opportunity to strengthen the bridge, improve the public realm, and maximise the setting of the listed Queen Street Station. III Public realm and infrastructure works in the vicinity the Dundas/Queen Street Station entrances: with the relocation of taxis from the lower end of Dundas Street, the proposal is to create a new public space which will enhance the sense of arrival to and from Queen Street Station and encourage connectivity with George Square, Buchanan Street and Cathedral Street. IV Improving access to Queen Street Station: To improve integration and connectivity between Buchanan Bus Station and the University district with Queen Street Station, George Square and the south of the City Centre, pedestrian access will be provided directly off Cathedral Street with walkways, escalators and travelators, providing direct access to the station concourse and George Square. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 32 of 89
V Public realm and infrastructure improvement works in George Square and Buchanan Street: The Council has an aspiration to blend the public realm and infrastructure enhancements with other areas in the City Centre in order that the improvements delivered by the regeneration of the Buchanan Quarter extend across the City. It is therefore proposed that improvements to the public realm and infrastructure will include George Square and Buchanan Street. Taken together, these works comprise a total TIF requirement of 80m. The TIF model prepared assumes that the first phase works can commence in March 2013, which are on target to commence at such a date, demonstrating the readiness of the project to go, with completion in June 2014 in advance of the Commonwealth Games (July 2014), again offering a significant benefit to both the perceptions of Glasgow and Scotland. The second and third phase of the eligible works programme will be completed by October 2015. 3.3 Delivery Process The Developer has prepared a detailed timeline for the delivery of the prioritised assets in the context of the completion of the wider Buchanan Quarter development. As illustrated overleaf the Developer will undertake the Buchanan Quarter on a three-phase basis. In approximately March 2013, the Developer expects to commence the extension to Buchanan Galleries, subject to achieving 40% pre-letting (by income), securing TIF for public realm and infrastructure works and demonstrating satisfactory forecast returns for the development. The Phase 1 TIF works will be undertaken with a planned completion date of June 2014. These works principally comprise a new entrance atrium to the Royal Concert Hall, Dundas Street and Dundas Lane pedestrianisation works, George Square improvements, structural strengthening of Cathedral Street Bridge and associated public realm and infrastructure improvements. Phase 1 would be completed ahead of the Commonwealth Games and enhance the City for visitors. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 33 of 89
Phase 2 and 3 will be undertaken with a planned completion date of October 2015. The enabling works are principally concerned with the creation of new public walkways linking Queen Street Station to Cathedral Street thereby enhancing integration with the City Centre University district; public realm and infrastructure improvements to Cathedral Street and extensive public realm improvement works, associated utility diversions and wider public realm and infrastructure improvements to Buchanan Street, North Hanover Street, Killermont Street, the underpass at Cowcaddens Road, the refurbishment and extension to the Royal Concert Hall, and the Cathedral Street connection to the University district. These works will be procured separately as part of the developer s main contract and will therefore be delivered on practical completion of the developers works. The proposed timeline for the delivery of public infrastructure works is set out in Figure 3.2. Figure 3.2: Development Timeline C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 34 of 89
3.4 Other Funding/Finance Help with TIF C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 35 of 89
The Council has received a detailed development appraisal from the Developer and is satisfied that they are making reasonable valuation assumptions having regard to current levels of scheme design and available information on the anticipated costs of development. In addition, the Council is satisfied that but for the availability of TIF, the regeneration of the Buchanan Quarter will not proceed. A summary of the proposed investment in the Buchanan Quarter is as follows: m Gross Investment 390.0 TIF funding 80 Net Private Sector Investment (initial investment; indirect private investment is expected to follow) 310 NNDR created per annum 6.1 Public Private Investment Ratio 1:3.9 The above table demonstrates the quantifiable level of public: private spend within the red-line area. In addition to this however, further private sector development, for example within the black-line, is also expected to arise as a result of the public investment made. As such it is expected that the outturn public: private sector investment ratio will likely exceed the figure of 1:3.9 detailed above. 3.5 Sustainable Development The Buchanan Quarter proposals take a positive approach to national and local sustainability policies. The proposals will achieve the following strategic sustainability benefits for the area: Being located in Glasgow City Centre the Buchanan Quarter is readily accessible to all residents of the city, and wider area, by public transport. Following construction it will help secure the City Centre s position at the top of the UK s retail and leisure hierarchy for the city-region and enhance the region s tourism offering. The level of investment proposed will help secure additional investment in the City Centre and wider which will secure employment and reinforce the above benefits. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 36 of 89
The proposals will see Queen Street Station become more integral to the City Centre and consolidate its position as one of the principal transport interchanges in the city-region as well as improving permeability to other public transport facilities. The Council has tasked the Developer, utilising its industry leading expertise in progressing sustainable measures, to manage: Carbon reduction targets: By 2012/13 the Developer will aim for 20% reduction below 2010 Building Regulations standard. Therefore through comparison of the required standards of the Council for new development in the city, the Buchanan Quarter proposals will exceed these requirements in terms of reduction in carbon dioxide emissions. The aspiration for the development of the Buchanan Quarter is to create a sustainable shopping environment for the future. This will bring benefit to the Developer s business, retailers, and their customers and for the city of Glasgow for many years to come. Transport: Existing public transport is excellent with both the city s primary bus station and Glasgow Queen Street railway station located centrally within the Buchanan Quarter. As part of the development it is proposed to create a new pedestrian link from Cathedral Street to the Station concourse, which is a new route, supported by Transport Scotland and Network Rail. Car parking will be reduced from 2000 spaces (Buchanan Galleries Carpark) to 1500 spaces in the new scheme. This is seen as a benefit from an environmental perspective and shoppers will be encouraged to use existing public transport by improving pedestrian routes between the bus and railway stations and retail space. In addition a green travel plan will be produced and implemented to ensure the scheme offers a range of sustainable travel options to visitors. Resource Use: materials & waste: The works will be undertaken using modern methods of construction to ensure the effective use of materials as well as reducing resource consumption. The scheme s design will incorporate a waste management strategy developed to optimise on-site segregation in order to maximise the recycling and/or the recovery of operational waste. Energy: The regeneration of the Buchanan Quarter will seek to optimise building design in order to minimise energy requirements and make use of renewable energy where appropriate. Efficient building energy management processes will be utilised and retailers will be engaged to manage their energy consumption through efficient design. BREEAM: The scheme will be built to achieve a BREEAM rating of very good with an aspiration to achieve excellent. Water Usage: Low water consumption features will be incorporated within the design to reduce demand on mains supply. ISO 14001: All construction will be undertaken under the management of an ISO 14001 certified Environmental Management System. 4 Economic Impact Assessment C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 37 of 89
The Council recognises that a proposal of this significance will, by its very nature, alter, enhance, and in some cases, displace patterns of economic activity and investment elsewhere. Recognising this, and in compliance with SFT economic impact assessment for TIF guidance 1, and assessment has been undertaken by URS Corporation Ltd (URS), with specialist support from GVA Grimley, to examine the likely net economic impacts, in terms of employment and GVA, associated with the proposals. This section of the business case therefore summarises the key outputs of the URS economic impact assessment and considers the: Context for considering the economic effects of the current proposals Market failures the proposed TIF intervention will address Approach adopted to assessing the counterfactual (i.e. what might happen in the absence of TIF?) Method used to measure the range of impacts that might be derived from the adoption of TIF Net additionality of the proposals (i.e. by comparing with TIF to without TIF outcomes) and likely qualitative and quantitative benefits in terms of employment, GVA and wider impacts Conclusions that might be drawn in relation to the efficacy of the current proposals and the potential uplift in business rates that might result Wider and longer term benefits that might arise from the scheme 4.1 Context and Scope The Buchanan Quarter scheme includes substantial investment in public infrastructure and improvements to the quality of the environment in the City Centre through major public realm and other public infrastructure improvements as detailed in section 3. Collectively, these infrastructure works are expected to enhance the retail/visitor experience and perceptions of this part of the City Centre by improving the public realm, securing private sector investment, and increasing permeability and accessibility. In the absence of any economic impact analysis, however, it is not possible to assess whether the Council s proposed investment (via TIF) is likely to be beneficial: without an assessment of 1 Tax Incremental Financing in Scotland: The Supporting Economic Case (Scottish Futures Trust, March 2010) C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 38 of 89
additionality we do not know if the intervention is delivering real results, over and above what would have happened anyway, addressing market failures, nor can we tell if intervention offers good value for money (Additionality and Economic Impact Assessment Guidance Note, Scottish Enterprise, 2008). The importance of considering such issues is primarily because the impacts that might result from the Buchanan Quarter development beyond the City Centre may not necessarily be positive. So if, for example, the development causes displacement (i.e. from reduced demand at other retail facilities outside the City) or is nonadditional (i.e. similar types of development will take place anyway) the assumed positive uplift in business rates from the scheme may be offset by such effects (beyond the local TIF area). In the context of the above, therefore, the economic impact assessment conducted by URS aimed to address two inter-related questions: Are the proposals for the Buchanan Quarter justified from an overall public sector perspective in terms of market failure, net impact and value for money? Are the business rate impacts (net of allowance for displacement as required in the SFT guidance) at a local and wider Council level likely to generate sufficient future net additional revenue streams to take forward the enabling investments proposed? The URS economic impact assessment considers the economic impact of the key developments taking place in the Buchanan Quarter (within the red line area as identified at section 3.1) upon the rest of the city, region and Scotland, and incorporates the major improvements and developments proposed by both the public and private sectors as a result of TIF. The definition of the Buchanan Quarter project assessed by URS and reported in this chapter includes the proposed development at 185-221 Buchanan Street (known locally as the Atlas site) with this being a component part of the overall plans by the Buchanan Partnership to deliver new development and regeneration in this part of the city. Following the completion of the economic impact assessment and as the proposals for TIF progressed, alternative and viable funding options became available to deliver this element of the scheme outwith TIF. Following discussions with the Scottish Government, the Council excluded this element of the proposals from the TIF red line area, with the associated NNDR is excluded from the TIF financial proposals. The Council, in discussion with URS, its financial advisors PwC, and the Developer, have considered the implications of the exclusion of Atlas on the conclusions reached by URS in their report, particularly in relation to the assessment of displacement. As a result of these discussions, it has not been considered necessary to refresh the URS analysis for this revision to the scheme as the overall outputs being assessed (in terms of the developments being delivered in Buchanan Quarter) remain unchanged. As such, with the outputs remaining the same, it is considered that there would be no material difference in the overall impacts and conclusions identified, including displacement. Best practice in public sector economic impact assessment does, however, require that only the benefits directly supported by the public sector s contribution be reported and claimed with reference to any given intervention. Therefore, headline direct impacts, in terms of jobs supported by the TIF, investment leveraged and gross value added have been adjusted and reported clearly, having been revised downwards in proportion to the element of the scheme now excluded from direct C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 39 of 89
TIF support. On the basis of the above, and with the exception of aforementioned restatement of the direct impacts, this section of the report refers to the impact of the full Buchanan Quarter proposals, including Atlas, upon the wider economy. 4.2 Market Failure Market failures are: imperfections in markets that prevent them from producing efficient outcomes (The 3Rs guidance, OPPM, May 2004). The rationale for public sector intervention is, therefore, predicated on remediating or removing such failures where they exist. Consequently in the context of the current proposals it is important to establish and critically evaluate the rationale for undertaking the TIF (in relation to the Council s investment in enabling assets) by demonstrating why the private sector cannot or would not take forward the project (in the same timescale, or type of development, or quality or scale as envisaged as a result of the initial Council investment). The key areas of market failure (highlighted in the 3R Guidance) are: Externalities these are the spillover effects of economic activity which impact on people and places outside the direct production and consumption of a good or service. These need to be encouraged where positive, e.g. education and minimised where negative, e.g. pollution Public goods these goods satisfy two conditions: they are non-rival in consumption i.e. consumption of the good by one individual does not compromise the ability of another person to consume the good e.g. street lighting and they are non-excludable in that an individual who has not paid for a good cannot be prevented from consuming it e.g. public realm. As a result of these two conditions the private market is often unwilling to deliver the social optimum level of such goods Coordination failure no single private entity will be able or willing to bear the costs and have the power to coordinate activities in an efficient and equitable manner, e.g. planning policy In relation to the Buchanan Quarter, each of these market failures provides rationale for intervention: Externalities Public infrastructure such as public realm and enhancements to transport have significant positive externalities on local communities and often require public sector support to encourage their delivery. The scheme is also anticipated if taken forward with TIF support to generate a range of external economic benefits in terms of stimulating wider growth and redevelopment across the city. No developer, or investor, would be able to capture a financial return from these wider benefits and this would result in, from an overall social perspective, underinvestment by the private sector. The wider benefits of the Scheme are considered to be consistent with and supportive of the Council s and other key public sector stakeholders objectives, namely: C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 40 of 89
Maintain and enhance the retail sector as a primary driver of the local and regional economy and as a key attribute of Glasgow and Scotland s tourism offer Promote and develop the Glasgow and West of Scotland brand in order to attract inward investment and skilled labour to Scotland, against other UK and international locations Enhance the appearance, accessibility, security and attractiveness of the City Centre as a place to visit including support for an enhanced evening economy Promote the arts and culture in the region Support the integration of Glasgow with other local, regional and national economies Promote the sustainable development of Glasgow through investment to reduce the impact of economic activity on the environment e.g. improvements to public transport Public Good The public realm enhancements envisaged under the current proposals (including street lighting, pavements and public parks) is considered a public good as it is non-excludable in nature and exhibits a (partial) non-rivalry in consumption. The public sector may require to contribute to developing public realm as it may be under-provided by the market if provided at all. The Council has previously invested in similar improvements to the public realm across the city in recognition of the potential benefits this brings. Coordination failure The public sector has a key role in planning activities such that they result in an optimal outcome for the local area. The Council believes that TIF provides a route through which it can encourage strategic improvements across this area of the City Centre which no other party would be in a position to deliver. While the rationale for intervention may be justified under market failure grounds it is important, before taking forward any TIF, to test as indicated by SFT Guidance what might happen anyway and the wider (positive and negative) impacts that could result beyond the immediate (local) TIF area. In considering these issues SFT Guidance suggests evidence should be drawn through: utilising interviews with and submissions from key stakeholders, local organisations/bodies affected by the TIF and other relevant parties. Consequently the assessment of the impacts of the Council s proposals has drawn upon various sources of (such) evidence, namely: C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 41 of 89
The Council s consultations with the Developer, their advisors and also wider market soundings in relation to the likely outcomes in the absence of (or but for ) TIF case A specially commissioned survey, undertaken by URS and supported by Dram Communications, of stakeholders (agreed by SFT) likely to be impacted by the TIF both within the City Centre and wider surrounding areas Published data and market surveys of likely future development trends (based on developer and other stakeholder views) in the City Centre and wider Council areas On the basis of these sources consideration is given, in the rest of this section, to the: Counterfactual namely, in the absence of TIF, what may happen anyway Potential displacement impacts, from a city centre and wider perspective, if the TIF proposals go ahead 4.3 Counterfactual - 'but for test' In assessing the outcomes likely to be delivered by the Developer but for TIF the Council has considered: The extent to which the economic benefits identified could be secured in the absence of the public and private sector investment deliverable through TIF Whether the proposal from the Developer represents the only feasible means of delivering this scale of development in this part of the City Centre? (i.e. could another private sector developer provide desirable alternative proposals?) In the absence of the enabling infrastructure investment how likely is it that the Developer s or alternative proposals would proceed in full, part, or to a different timescale? What level of return on their investment might the Developer be expected to obtain with and without the enabling infrastructure in order to gauge the impact of any public support? In testing whether the potential benefits of the Buchanan Quarter could be delivered elsewhere in the city, the Council has considered the extent to which the: C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 42 of 89
Objectives of the Council - for the regeneration of this area of the City Centre, and promotion of Glasgow City Centre as a leading UK retail destination - could be met or supported to a similar extent, or over a similar timescale, without delivery of the Scheme Funding available through the application of TIF represents the only viable funding source through which the public sector could make a contribution to the delivery of the enabling infrastructure required for the Scheme to proceed and through which the further public works identified could be funded and delivered Anticipated direct and wider benefits to the economy resulting from the investment in public works and subsequent levels of private sector investment could be delivered by alternative means Economic development of Glasgow City Centre would stall in the absence of the Scheme and proposed investment in public works It is the Council s view, based upon consultation with a variety of stakeholders and the economic demand and supply analysis undertaken as part of the project s feasibility, that: The retail and leisure sector is an important driver of economic development, tourism and employment in Glasgow and that maintaining a critical mass of such facilities in the city will be important in sustaining the ongoing success and competiveness of Glasgow City Centre against other, resurgent, UK City Centres There is identifiable demand, from retail and leisure brands, that would be new entrants to Glasgow (and in some cases to Scotland) for modern format, city-centre, retail space that can accommodate their needs but currently, there are limited opportunities for supplying such space Retail demand studies suggest the level of new floorspace proposed as part of the scheme is a proportionate response to the market for floorspace in Glasgow City Centre Without delivery of the Buchanan Quarter scheme it would be exceptionally difficult, particularly in the current environment, to secure substantial investment in this part of the city and send a similarly positive message to other private sector investors about the prospects for the City Centre, the region and Scotland as a whole The Buchanan Quarter Scheme will only be realised if the enabling infrastructure is delivered and, in the current economic and financial climate, TIF represents the only feasible means through which the Council could access the required funds C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 43 of 89
Without the capital funding unlocked by TIF it would not be possible to deliver the full range of improvements to public infrastructure and public realm identified and that without these the wider benefits identified for the City Centre would not materialise in full or to a similar timescale Investment is required now to provide stimulus to the economy in order to maintain and promote investment, assist economic recovery and deliver improvements to the City Centre in advance of Glasgow s hosting of the 2014 Commonwealth Games Moreover, it is the Council s understanding from extensive discussions with the Developer, advisers and wider market research that: The Developer, as existing landowner, holds a special economic position and that, other than through compulsory purchase of Buchanan Galleries, no other party would be able to match the proposals drawn up by the Developer either in terms of scale or timescales The Developer is not able to generate a rate of return sufficient to justify investment in the Scheme (in comparison with other projects elsewhere in the UK and Europe) if it has to fund the delivery of significant levels of enabling public sector infrastructure Only through an alternative means of delivering the public infrastructure is the overall commercial viability and sustainability of the scheme possible. In the prevailing market retail developments of a similar size and scale would require an appropriate IRR to justify continued and sustainable investment. A professional assessment of the Developer s project appraisal commissioned by the Council and undertaken by CBRE, indicated that the Internal Rate Of Return secured from the Scheme with TIF support is in line with other developments (i.e. the developer will receive normal market levels of return from their investment. Consequently, in the context of the above, the Council considers it unlikely that, but for a contribution to delivery of the enabling infrastructure being made (through TIF or otherwise) investment of any significant scale would be made by the private sector in the Buchanan Quarter for a considerable amount of time. In short, therefore, the Council believes that but for TIF the Scheme and associated improvements to public infrastructure would not be delivered. A total financial investment in Glasgow City Centre of 390m would be lost along with significant short-term economic stimulus and employment opportunities during the construction period. In addition, substantial and long lasting economic benefits would be lost in the longer term without the completion of the Buchanan Quarter to act as a catalyst for further investment. There would be a significant risk that investment in the core retail area of the city would stagnate for the foreseeable future and become increasingly uncompetitive relative to other city centres in the rest of the UK, which would have a direct consequence for the wider economic wellbeing and competitiveness of the City, region and Scotland more broadly. In addition an opportunity to secure the funding necessary to make wider improvements to public assets in the City Centre would be forgone. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 44 of 89
4.4 Potential benefits if TIF is adopted While the analysis above suggested the project proposals are unlikely to be taken forward in the absence of TIF it is important to also consider what impacts might result (if TIF is adopted) at city wide, regional and national levels. The approach taken by URS to addressing this issue is based on guidance from Scottish Futures Trust (SFT), Scottish Enterprise and English Partnerships. As a result URS have modelled two scenarios: the intervention case (i.e. with TIF) and the reference case (i.e. without TIF) in order to determine the net impacts (or difference between these two scenarios) in terms of employment, Gross Value Added (GVA) and floorspace creation. As indicated previously the primary sources of data initially used to inform the URS analysis are: Stakeholder consultations with a cross-section of stakeholders agreed with SFT. The aim of this consultation process was to understand and assess the views of a range of parties with different interests and perspectives in relation to the proposals and to use their responses to inform and quantify the impact assessment and overall approach to delivering TIF in Glasgow Retail demand studies. These were used to provide the basis against which to consider scenarios for future retail and projected retail growth in the City and wider Council area. The studies used were: Glasgow and the Clyde Valley Structure Plan Technical Report TR 7/06, April 2006; Glasgow City Centre Cumulative Impact Retail Study, Halcrow, March 2009 and Glasgow City Centre Retail Survey, GVA Grimley, 22 November 2010. As detailed in the final URS report (version 12), subsequent review by SFT of the initial analysis led to consideration of more up-to-date projections of future development demand (particuarlly given the impact of the recent recession). Reasssurance was consequently provided by URS that the projections of demand were reasonable, reasoned and consistent with both past and future trends. 4.5 Consultation Outcomes 4.5.1 Response Rates In total 36 stakeholders were contacted for their views on the proposed economic impact of the scheme and of these 21 provided responses. The respondents represented a board range of sectors and geographies. Of those who responded 6 could be considered to have a city centre focussed perspective, 8 a regional interest and a further 7 a more generalist perspective. In particular the targeting of representative industry bodies with a broad membership base was designed to facilitate the capture of a broad set of views and perspectives. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 45 of 89
4.5.2 City Centre Views Nearly all stakeholders expected significant benefits to arise from the Buchanan Quarter Scheme. In particular the majority of consultees believe that the proposals will have a positive impact and transformational catalytic effect on the City Centre providing a much needed step change in Glasgow s offer and brand, through: Positive impacts from the enhanced City Centre retail offer and its substantial contribution to the increased use and profile of the City Centre and Glasgow as a destination. In particular the improved anchor tenants and modern format retail floorspace will allow accommodation of new retailers in the City Centre, and indeed to Scotland, enabling the City Centre to compete more effectively and retain/enhance its status in the UK retail hierarchy. Non-retail aspects to the Scheme are viewed as being important to further reinforcing the City Centre vitality and viability, including city living. The inclusion of further residential and civic uses would be a positive attribute to the City Centre Significant benefits of public realm improvements and the inclusion of leisure/evening uses (extended hours of use/retailer opening hours) Significant enhancements to Queen Street Station and its immediate surroundings would dramatically improve its role as a major arrival point to the City Centre, together with improved integration between train/taxis/low level and bus station enhancing the public transport experience. The increased integration and permeability created between the station and surrounding City Centre would be a major benefit to this part of the City. Improved security/safety and perceptions in that part of the City Centre which is currently a major issue Public realm and safety enhancements will improve the experience for students at the University and a redeveloped City of Glasgow College through better integration of these sites with City Centre facilities and Queen Street Station. An improved environment will support the marketing, appeal and competitiveness of these institutions helping to attract and retain students The scale and nature of investment sending a positive message to businesses/private sector in Glasgow regarding its future potential and the public sector commitment at a time when investment has declined and it is important to boost confidence. In addition the majority of consultees identified positive (catalytic) benefits to other City Centre/Glasgow businesses (non retail) through increased opportunities, confidence (e.g. hotels, other service industries, suppliers etc). A number of consultees considered that increased levels of footfall generated by larger/new retailers and enhanced retail offer will help sustain smaller retailers in the City Centre. A number of stakeholders also expressed views that the improvements could and should act as a catalyst for further improvements to the City Centre in other priority areas e.g. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 46 of 89
Sauchiehall Street and opportunities for enhanced environment and linkages at the southern end of Buchanan Street, around Argyle Street and creating improved linkages down to the River Clyde. Stakeholders considered it important that the Scheme attracts and accommodates principally new retailers to the city, rather than the relocation of currently represented retailers, to maximise the positive impacts, increase the city s retail offer and minimise any potential displacement within the city and beyond. Specific comments/concerns were raised regarding the current and future role of Sauchiehall Street (and to a lesser extent Argyle Street) given its decline as a retail destination within the City Centre in recent years and the quality of environment/shop fronts. In light of these responses, the Council and Developer would introduce, where appropriate and necessary, measures to support back fill of units in key areas. One party considered the proposals would create an over-supply of retail floorspace in the City Centre given current market conditions and uncertainty over letting existing available floorspace in the City Centre in the context of their own experience. Uncertainty over short to medium term retail trends/expenditure particularly in context of proposed public sector cut backs and reliance of the Scottish economy on public sector jobs was also raised as a potential issue. Another party felt that the Scheme would displace demand from other City Centre retail space and potential retail developments and would tighten the retail circuit consequently making it difficult for secondary retailers to draw custom, for example, down Sauchiehall Street. Recognising these concerns the Council considers the regeneration of Argyle Street and Sauchiehall street as an on going top priority which is currently being addressed by the Style Mile project. In terms of supply of retail floorspace the Council is comfortable that there will be demand for appropriate sites based on independent research and the Developer s inward investment targeting plans and proven track record. 4.5.3 National/Regional Views There was a significant level of positive comment regarding the Scheme s ability to substantially enhance Glasgow s role and ability to protect its future competitive status at a UK (e.g. compared to cities such as Birmingham and Manchester) and international level. A step change is required in the City Centre retail offer and its environment to respond to competition and enhance Glasgow s role in the national and international retail hierarchy so that it can continue to attract economic activity and visitors to Scotland. The attractiveness of the Glasgow City region to investors is increasingly dependent on its ability to attract and retain the most sought after workers. Consultees suggested that the Scheme has the ability to deliver an important step change towards a vibrant and desirable City Centre that would allow Glasgow to maintain its ability to act as an important engine of growth for the west of Scotland. There is the potential to create an asset and exemplar Scheme for Scotland, not just for Glasgow, sending out the message that Scotland is open for business. Consultees expressed views that the City Centre provides a distinct/different offer to other centres in the region and will continue to act as a destination for shopping/leisure that cannot be provided by the smaller centres i.e. that existing centres will continue to function in their respective roles in the regional retail hierarchy. In particular there was a generally held view that there is very limited competition/overlap between Edinburgh and Glasgow as retail and tourism destinations (i.e. the two cities have very different offers/images and loyal customer base). C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 47 of 89
Views were expressed that the Scheme would enable Glasgow and the wider region to attract more visitors (particularly given the importance of retail to the Glasgow experience/reasons for visitor trips) from England and internationally, expanding its current market and drawing in additional spend, income and employment to the region and to Scotland that would not otherwise be achieved. The strategic view, taken by those involved at a policy level, see the station improvements and enhanced integration between transport modes as making a very positive contribution as part of the regional infrastructure network. In the longer term it needs to link in with /be integrated with other transport improvements/initiatives in the City Centre to ensure that the benefits of Glasgow as the heart of the regional economy is shared and dispersed across the wider region. In general stakeholders expressed a view that the benefits to the wider economy of the developments in the City Centre would significantly outweigh any potential negative impacts on out of town locations. However, views were expressed that there could be some negative impacts on out of town retail locations. One party said they had not seen enough information, such as retail impact studies, to judge whether there would be negative impacts outwith the City Centre. They felt there could be some negative impacts on weaker out-of-town retail in the short to medium term and much depended upon the future rate of economic growth. The Council considers the City Centre to be the regions retail core and a catalyst for a range of wider strategic economic development priorities but recognises the particular role of out of town locations in the regional and national retail hierarchy. 4.5.4 Recommendations Consultees were asked for their views on what could and should be done to maximise the impact of the proposals and raised various points: Ensure that any new development connects with other initiatives and projects in the City Centre and wider region Important to create linkages with bus station, improve pedestrian routes and environment around the bus station to integrate with Buchanan Quarter proposals Maximise linkages/connections with the university campus overcoming current barriers to create a more integrated part of the city Hold discussions and promote initiatives to deliver local jobs for local people and encourage the use of local businesses in the supply chain C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 48 of 89
In light of the evidence received from the consultations the Council believes that the Scheme overall has significant support and qualitatively there is evidence to suggest new investment, employment and economic activity is likely to result as well as a range of other benefits such as improved evening security and a more appealing environment. The Council will seek to minimise the displacement of activity from elsewhere in the city/region and is confident following discussions with the Developer that they are aiming to attract a number of retailers to the city who will be opening their first store in Scotland, who are not currently represented. In addition a strategic retail impact study undertaken by Halcrow in 2009, suggests that the City will require significant extra floorspace to be delivered in order to accommodate retailer demands in coming years. The Council is keen to ensure that the benefits of the Scheme and the capital investment possible through TIF provides benefits across the City Centre and region and it has prioritised a number of projects to improve the overall connectivity, vitality and attractiveness of the whole City Centre and disperse the impacts of the Buchanan Quarter project across the widest possible area. 4.6 Net Additionality 4.6.1 Approach While the above consultation responses reflect the qualitative views of stakeholders it is important from a policy perspective to identify a range or level of quantitative effects that might result if the scheme is taken forward, in particular whether the scheme will divert or otherwise negatively affect existing or planned activities elsewhere in the city or wider field. Consideration of any such displacement effects allows the Council to assess what activities, and, in the context of TIF, therefore rate receipts, may be displaced from elsewhere in the Council area and, from a national policy perspective, what impacts there may be on the rest of the region and Scotland wide. URS analysis of the quantitative economic impact of the scheme is based around an analysis of the underlying demand and supply for floorspace in the Glasgow and West of Scotland region and the impacts the delivery of the new Buchanan Quarter developments in the TIF red line area could be in terms of associated employment and GVA impacts (using widely used standard multipliers published by English Partnerships and others). In short, the investment in facilities is predicated on uplifts in market demand. The means to assessing the levels of such demand in GVA and employment terms is based on the relevant investment profiles in these new facilities. The assumptions underpinning this modelling exercise have been influenced by the evidence received through the consultation process. Consequently based upon stakeholder responses URS scored consultees answers and views in relation to both the sectors and areas likely to be affected by the scheme in terms of five measureable outcomes: + 10 = very positive impact resulting from the scheme + 5 = some positive impact C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 49 of 89
0 = neutral effect -5 = some negative impact -10 = very negative impacts As indicated, from stakeholders averaged responses at Table 4.1 below, it is apparent that the: Impacts of the scheme across various sectors will, in most stakeholders views, be positive and potentially stimulate further growth in the City Centre; and, Scheme is unlikely to have any negative impacts outwith the City Centre except in relation to the retail sector. Table 4.1 Strength of Impacts Impact City Centre Activities Outwith City Centre Retailers 5.5-2.3 Cinemas 4.8-0.3 Restaurants/bars 6.0 0.0 Hotels 6.3 0.0 Tourist related activities 7.0 0.0 Other, including offices 7.0 0.0 Source: URS calculations from answers to Questions 3a and 3c of the questionnaire (URS Report, Appendix C). URS have used the above analysis of the consultation results to inform their modelling, with the reference and intervention cases being adjusted to reflect consultees responses. In doing so URS have, in summary, assumed that: Under the reference case (scenario without TIF investment what would happen anyway ) there will be uplift in development in the City Centre and elsewhere as the economy grows over time Under the intervention case (scenario with TIF and resulting private sector investment) the rate of this uplift, as demonstrated by the economic analysis undertaken in support of the project, will be greater over time as a result of catalytic benefits that are likely to occur through improved linkages and enhanced demand in the City Centre bringing forward investment and economic activity. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 50 of 89
Under the intervention case out of the city centre the effects of the development could result in reduced investment and growth in out-of-town development, except in a high growth long-term scenario (as reflected by most stakeholder responses) Based upon the above, respondents viewed the potential wider displacement impact of the Buchanan Quarter project as being limited in relation to retail and cinema space and that the other types of development would effectively be impacts that are seen as solely additional. In addition to the results of the consultation process, URS have further sought to verify the extent and nature of potential catalytic impacts by reviewing, in conjunction with GVA Grimley, all the sites within the black line area of the city centre (identified at section 3.1) to assess whether they are likely to be taken forward or implemented sooner as a result of the scheme. In addition URS have considered such changes over the period of 2011 to 2018 in the context of high and low growth scenarios, (as identified by the various retail studies identified previously) that suggest, post recession, between 2.5% to 5.15% real rates of annual growth in retail spend with these growth rates being informed by independent retail demand studies previously commissioned by the Council and historic precedent (which suggested such levels are at lower levels than experienced prerecession). 4.6.2 Results The URS analysis provides net additional quantitative results in relation to floorspace creation, employment and GVA. These outputs once the development has been completed, in terms of net additional floorspace and the employment and GVA that this floorspace supports are derived from the URS demand and supply model. In addition, they have also estimated that during the construction period around 4.357 person years of employment could be generated. GVA is a commonly used measure that can broadly be considered as the difference between economic inputs and outputs typically defined as wages and profits. SFT guidance suggests consideration is given to GVA in assessing the wider economic contribution of any intervention. As illustrated in Table 4.2 overleaf, URS have estimated that each job created as part of the Buchanan Quarter scheme will contribute in the region of 24,360 per annum of GVA 2 The conclusions of the consultations and analysis of the potential for catalytic development is considered to be most relevant in estimating and evidencing impacts over the short to medium term. Beyond the medium term it is considered more difficult to evidence causality between the initial intervention and the ongoing benefits arising. Focusing, therefore, on the short-medium term timeframe (2011 to 2018) and in the context of the high and low retail growth scenarios examined, and as illustrated at Table 4.2 below, the URS analysis suggests that under the: This was estimated from ONS data covering GVA per workplace job in south-west Scotland for each industry sector (e.g. retail, catering etc). A weighted average of 24,360 p.a. for the Buchanan Quarter scheme was calculated by URS based upon the mix of uses proposed in the current plans. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 51 of 89
Low growth scenario the level of net additional uplift in floorspace in the City Centre as reflected in the sites and areas identified above could be in the region of 25,478 square metres supporting a net additional 1,336 full time equivalent (FTE) jobs and contributing 32.5m per annum to the economy in GVA terms High growth scenario this uplift could be as much as 45,474 square metres, supporting a net additional 2,203 FTE jobs and contributing 53.7m per annum to the economy in GVA terms. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 52 of 89
Table 4.2: Net Floorspace Impacts 3 High Growth (GCC level analysis, short-medium term 2011-2018) Buchanan Quarter Floorspace (sq.m.) 4 Floorspace Outwith Buchanan Quarter (sq.m.) 5 Catalytic Impacts (sq.m.) 6 Balance (sq.m.) Intervention Case 55,927 53,293 17,761 126,981 Reference Case 0 81,507 0 81,507 Difference (intervention case less reference case) 55,927-28,214 17,761 45,474 Employment (FTE) [X] - - - - Estimated GVA per annum per Workplace job, p.a. [Y] - - - 24,360 Total net GVA per annum, m p.a. [(X*Y)] - - - 53.7 Construction Period Employment (person years) - - - 4,357 Low Growth (GCC level analysis, short-medium term 2011-2018) Intervention Case 55,927 33,381 17,677 106.985 Reference Case 0 81,507 7 0 81,507 Difference (intervention case less reference case) 55,927-48,126 17,677 25,478 Employment (FTE) [X] - - - 1,336 Estimated GVA per annum per Workplace Job, p.a. [Y] - - - 24,360 Total net GVA per annum, m p.a. [(X*Y)] - - - 32.5 Construction Period Employment (person years) 4,357 3 Floorspace figures in this table are taken or derived from figures in Table 6.8 of the URS Buchanan Quarter economic impact assessment report. 4 This figure is made up of 50,628 sq.m for the Buchanan Quarter and Atlas site schemes and 5299 sq.m of leakage, displacement, substitution and multiplier (L, D, S and M) effects associated with this floorspace. Similarly figures presented in the other columns of Table 4.2 include these effects. 5 This figure is for projected net additional retail floorspace including L, D, S and M effects 6 This figure includes non-retail commercial floorspace 7 Growth rates are assumed to be the same for the Reference Case low and high growth scenarios due to supply side constraints C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 53 of 89
These impacts illustrated at Table 4.2 therefore represent the different net outcomes in terms of floorspace and employment: With and without Buchanan Quarter being taken forward, and Different growth profiles of wider retail demand and consequent likely investment in floorspace outwith the Buchanan Quarter As illustrated in Table 4.2 under both growth scenarios it is anticipated that if built, the Buchanan Quarter will bring forward catalytic development of around 17,700 square metres, mostly within the city centre. These catalytic impacts relate to the ability of the proposals to trigger other development and economic growth by creating an augmented environment (through the enabling investments) for regeneration, growth and investment within the local area. The exclusion of the Atlas development from the overall scheme reduces the total amount of employment generating floorspace directly supported by TIF from 50,628 sq.m to 42.364 sq.m (a 16% reduction). As illustrated at table 4.5 below, adjusting the outputs of the URS analysis by the same proportion results in employment under the low growth scenario of 1,122 FTEs and in the high growth scenario of 1,850 FTEs. The respective GVA figures are 27.3m p.a. and 45.1m p.a. with construction period employment reducing to 3,660 person years. Table 4.3: Summary of Short/Medium Term (2011-18) GVA at the Glasgow City Council Level, Adjusted to Exclude Development on the Atlas Site. Impact Low Growth Scenario High Growth Scenario Net Employment (FTEs, GCC level) [Y] 1,122 1,850 Estimated GVA per annum per Workplace Job [W] 24,360 24,360 Total GVA per annum [(Y*W)] 27.3m 45.1m Construction Period Employment (person years) 3,660 3,660 4.7 Single Displacement Figure The TIF Capture Mechanism paper issued by SFT outlines the methodology for retention of NNDR by the Council for purposes of TIF. A fundamental principal of TIF is that it only captures revenue which is net additional in economic terms. It is, therefore, a requirement of this mechanism that as part of the TIF business case submitted for approval, the Council forms a view of a single percentage figure to be applied to the gross NNDR captured C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 54 of 89
within the red line area that adjusts for the level of additionality anticipated. There is therefore a direct relationship between the financing of the TIF and the economic impact that is expected to result. For the purposes of the Buchanan Quarter project, and as discussed at Section 3.1, it is the Council s preference that the financing of the project is based upon a more tightly drawn red line area around the new Buchanan Quarter developments. The SFT guidance on TIF however envisages that the red line area for revenue capture is the same as the broad area in which economic impact is most likely to arise, which, for the Buchanan Quarter project is represented by the black-line area. The URS analysis incorporates both factors with their retail demand and supply analysis overlaying the impact of development within the red line area on broader trends while also taking into account wider positive and negative impacts such as those identified in the black line. Table 4.4 considers the implications of the URS analysis for estimating the appropriate single displacement figure to be applied. The Buchanan Quarter developments within the red line area deliver gross employment generating 8 floorspace of approximately 50,628 sq.m (denoted [A]). The URS analysis as outlined above at Table 4.2 implied that between 24,478 sq.m and 45,474 sq.m of net additional floorspace would be created in the short to medium term as a result of TIF (denoted [B]). The appropriate displacement percentage ([C]) can therefore be derived by considering what proportion of this gross floorspace deliverd ([A]) is represented by the resulting net impacts derived from the URS model (i.e. displacement is equal to 1-(B/A). On this basis, and as illustrated at Table 4.4, the analysis implies that displacement lies between 10% for the high growth scenario and 50% in the low growth scenario. Table 4.4: Summary of Short/Medium Term (2011-18) Net Impacts at the Glasgow City Council level Impact Low Growth Scenario High Growth Scenario Gross BQ Floorspace (sq.m) [A] 50,628 50,628 Net Floorspace (sq.m) (URS GCC Level Analysis) [B] 25,478 45,474 Floorspace: % Displacement [C=1-(B/A)] 50% 10% The Council has adopted a conservative rate of 30% as the single overall displacement figure for the TIF business case. This approach implies a retail expenditure growth rate mid-way between the high and low growth ranges identified by URS which the council considers to be an appropriate assumption over the short to medium term timescale assessed and in the context of the current economic and financial climate. Furthermore the Council considers this figure to be prudent in light of the broadly positive nature of the responses obtained through the consultation process (see Table 4.1 above) which implies displacement may fall closer to the lower end of the range identified by the URS analysis. In particular the Council believes that any retail space delivered as part of the Buchanan Quarter will be of a different type and quality to that already in existence in the City Centre and, as such, will be capable of attracting a number of new entrants to the City Centre, and Scotland, who cannot currently be accommodated. On the basis of recent retail demand studies the Council further believes that there is sufficient demand for retail space in the City Centre to ensure 8 The difference with the total Buchanan Quarter floorspace of 54,948 sq.m (including Atlas) being accounted for by circulation and ancillary space which is not in itself employment generating and has therefore been excluded. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 55 of 89
that any units vacated by existing tenants relocating to the Buchanan Quarter will be filled quickly and the Council will actively promote such a strategy in minimising potential displacement. Based upon the above proposed 30% displacement rate, and as summarised at Table 4.6 below, it is forecast that the project will support a net additional 35,476 sq.m. of floorspace creating around 1,770 FTE jobs contributing 43.1m annually to GVA. Where adjusted for the removal of the Atlas site a net additional 29,800 sq.m of floorspace is delivered supporting 1,486 FTE jobs contributing 36.2m annually to GVA. Table 4.6: Summary of Net Additional Benefits at 30% Displacement Impact URS Analysis (including Atlas) Adjusted for exclusion of Atlas Net additional floorspace (sq.m) 35,476 29,800 Operational Period Employment (FTE) 1,770 1,486 Operational Period GVA ( m per annum) 43.1 36.2 4.8 Wider and Longer Term Benefits While, for the purposes of the TIF capture mechanism, the focus of the impact analysis has been upon the catalytic effects of the proposals at a Glasgow City Centre level it is important to stress as reflected by the consultee responses and alignment of the proposals with regional and national strategies that there are likely to be a range of wider and longer term benefits resulting from the initial investment in the TIF infrastructure. As detailed, in Section 2, the proposals are aligned with Glasgow s 10 year economic development strategy and the eight core themes identified within this strategy. Key to all these themes is the importance of infrastructure as a fundamental foundation of economic development and growth particularly for a modern, open, competitive and internationally recognised city such as Glasgow. The importance of cities to regional growth is already recognised throughout the UK in the context of various initiatives to support City Regions and associated spillover and wider benefits from cities growth. The presumption, and one that is supported by the Council, is that the enabling infrastructure and associated catalytic developments within the City Centre will also generate a wider range of economic benefits to the region including improvements in economic activity, productivity, tourism and quality of life that are unlikely to be matched by any out of City development. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 56 of 89
While no direct measurement has been made of these wider impacts the Council is confident that the infrastructure improvements within (and outwith) the black line area will have significant and long lasting impacts for the Scottish economy and the overall strategic priorities identified in the Scottish Governments Economic Strategy, not least in terms of: Learning, Skills and Well Being; both in improving access to wider training and education opportunities through the accelerated developments at the various higher and further education sites and enhancing Glasgow as a location for both living and working Infrastructure Development and Place; through all the improvements identified, including supporting more efficient transport linkages via rail, and by adopting the TIF approach ensuring sustainable, high quality growth that will attract visitors and tourists to Glasgow as well as Scotland now and in the longer term Effective Government by demonstrating, through strong and direct partnership with the private sector, how to streamline procurement and sustain higher economic growth Equity: by promoting economic growth and environmental improvements and quality in a responsible and mutually advantageous manner C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 57 of 89
5 Financial Analysis The Council will be borrowing significant sums through the prudential borrowing framework in order to fund the enabling infrastructure required to deliver the TIF. To enable repayment of these borrowings the Scottish Government, through the TIF model, will allow the Council to retain the incremental NNDR which is likely to have arisen as a result of the project. Part of the TIF arrangements will be a binding commitment from the Scottish Government that this incremental NNDR may be retained by the Council in order to cover the cost of borrowing over a proposed term of 25 years. It is therefore essential for the Council to understand the ability of the estimated NNDR flows arising out of TIF to service and repay the upfront borrowings over time and within this 25 year term. The Council has developed, in conjunction with PwC, a detailed financial model which provides access to a 25 year cashflow and supporting sensitivities relating to the project. This is detailed in appendix D. The remainder of this section considers the base case assumptions adopted as part of this modelling and presents the resulting outputs and sensitivity analysis around these assumptions. 5.1 Base Case Assumptions 5.1.1 Capital Expenditure The estimated capital expenditure incurred in delivering the TIF enabling assets and works is 80m (as detailed in Section 3). Where the Developer is undertaking the works the Council will pay for these works on a milestone basis and only after the works have been signed off as completed. This has the advantage of keeping overall delivery risk with the Developer. Based upon the cost plans, specifications and working development assumptions currently available it is anticipated that this will lead to payments to the Developer in two stages between September 2014 and October 2015. The proposal also considers the associated works to be undertaken by the Council as part of the project. Council funding of 10m for the proposed RSNO development and internal refurbishment of the Glasgow Royal Concert Hall is assumed to form part of the TIF project. The RSNO scheme has been subject of a separate submission by the RSNO to the Scottish Government. In addition, there is a list of other enabling works which the Council has identified as a priority (as detailed in Section 3). In order to take a prudent view going forward the Council will only commit to these projects once funding through the TIF mechanism is available. The Council has considered potential existing borrowing sources of funding for these costs, but does not currently have capacity in its capital budget to invest in these assets. The funding gap to the Council is therefore the full 80m. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 58 of 89
These costs are reflected in the PwC model through two separate nominal drawdowns, as outlined below at Table 5.1 below, based on the current programme and cost information outlined at Section 3: Table 5.1: PwC Model Drawdown Assumptions Phase Drawdown Amount (,Nominal) Timing of Drawdown 1 25,000,000 Quarter 3 2014 2/3 55,000,000 Quarter 4 2015 Total 80,000,000 5.1.2 Annual Borrowing Costs Annual Borrowing costs associated with the proposed capital expenditure of 80m require to be repaid within the 25 year period of the TIF, starting 2014. Annual borrowing costs would be circa 5.85m in respect of this project, assuming a straight line annuity repayment over 25 years and an interest rate of 5.0%. The Council s budgeted pooled interest rate for 2011/12 is 4.6%. A buffer of +0.4% has been included in the base case to guard against future rate fluctuation and a general contingency. 5.1.3 NNDR 5.1.3.1 Incremental NNDR The Estimated Rateable Value (ERV) of the proposed new developments. This has been calculated taking into account the size of the proposed development together with anticipated rental values for the proposed space. On this basis the gross incremental revenue from the TIF is estimated to be 9.6m. In determining the net value of incremental rates available to fund TIF costs a number of other factors require to be taken into account, namely displacement, occupancy rates (voids) and bad debt. 5.1.3.2 Displacement C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 59 of 89
The amount of incremental NNDR which a local authority can retain under TIF requires to recognise loss of NNDR due to the impact of the proposals on the local economy (including displacement, substitution, leakage and multiplier effects). The economic impact assessment at Section 4 estimates a single displacement percentage of 30% be applied in this respect. In determining the value of NNDR which the Council can retain, an adjustment has been made which reduces the gross incremental NNDR by the value of 30% of NNDR lost through displacement. 5.1.3.3 Occupancy Rates (Voids) & Bad Debt The Council recognises that there will not be 100% occupancy of the proposed units included in the development. Where a unit remains unoccupied then rates relief applies at 100% for the first 3 months and 50% thereafter. In establishing an estimate of such voids to be included in this business case, a number of factors have been considered: The commercial business case prepared by the Developer has set a target of 95% lets at project completion with a maximum void of 2% within a year of project completion Review of average void rates across similar prime retail developments show voids ranging from 2% to 5%, with more recent Buchanan Partnership developments operating at 1% to 4% void The average value of voids at the current Buchanan Galleries is between 3% and 5% of rates billed in the previous three financial years. For the early part of 2011/12, voids are circa 1% for the current Buchanan Galleries. Average NNDR bad debt for the current Buchanan Galleries for 2009/10 and 2010/11 was less than 1%. In the current economic climate, the business case has taken a more cautious view and assumed 2.5% bad debt for both the baseline properties and the new properties under the development. Overall, taking each of these factors into account, and being mindful of the current economic climate, the assumption included in the base case is for a combined void/bad debt provision of 10%. This figure represents a cautious assumption compared to the targets assumed within the Developer s own investment appraisal and business case. The Council believes this position to be consistent with that assumed in previously considered TIF business cases. 5.1.4 Timings The TIF capture mechanism allows incremental revenues flowing from the enabled uplifts within the red line area to be captured for 25 years from the date at which the first drawdown is made. The financial model assumes that the first drawdown for the Buchanan Quarter Project takes place during C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 60 of 89
the course of 2014 from which date incremental revenues would be captured for 25 years up to 2039. In addition it is necessary for a baseline date to be agreed at which point revenue arising prior to the TIF (and to be subtracted from the NNDR collected within the red line post TIF) will be estimated. SFT s guidance on the setting of the baseline acknowledges that it should be set in advance of the hypothecation commencement date of TIF, in order to capture uplifts in developer sentiment and economic activity following approval of any TIF business case but prior to the first drawdowns and revenue capture commencing. The guidance currently proposes a baseline date of the 1st September prior to the financial year in which the TIF is to commence which, for the Buchanan Quarter, would be September 2013. 5.1.5 Summary of Key Base Case Inputs Table 5.2: Summary of Base Case Assumptions Assumption Value Phase 1 Drawdown 25,000,000 Phase 2 Drawdown 55,000,000 Total Capital Expenditure 80,000,000 Council Loans Fund Pool Rate (11/12) 4.6% Council Interest Rate Buffer 0.4% Total Interest Rate assumed 5.0% Displacement 30% Void Rate/Bad Debt 10% Date at which TIF Baseline Frozen September 2013 Date of First Drawdown June 2014 TIF Hypothecation Start Date June 2014 C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 61 of 89
TIF Rate Capture Period 25 years Assumed Date Borrowing Repaid 31/09/37 End of TIF Term 31/03/39 5.2 Base Case Results 5.2.1 Revenues Taking into account the base case assumptions outlined above the estimated annual incremental NNDR take arising from the project is illustrated in Table 5.3 below. Table 5.3: Estimated Steady-State NNDR m Gross Incremental NNDR 9.6 Less Voids/Bad Debt 0.9 Less Displacement 2.6 NNDR Retained for TIF 6.1 As illustrated, in Table 5.3, the base case results suggest that: An overall gross incremental level of 9.6m NNDR will be generated annually from the proposals In addition it is anticipated there will be, based on past experience, voids and bad debts of 0.9m per annum (c10%) C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 62 of 89
Consequently, before applying an assumed the TIF displacement adjustment of 30%, estimated rates collectable will be 8.7m(i.e. 9.6 0.9 = 8.7) Total net revenue, after applying the TIF displacement adjustment of 30% to the anticipated 8.7m of rates collectable, implies net additional revenues of 6.1m (i.e. 8.7 x [1 30%] = 6.1). The NNDR take, illustrated, of 6.1m, is greater than the annual borrowing costs on a straight line annuity basis of 5.85m identified above. 5.2.2 Repayment Period Recognising the ability of the estimated TIF revenues to more than cover the repayment of the debt based on a 25 year annuity, this section considers the timeframe over which the debt could be repaid if all of the revenues were used for debt service. The financial model prepared by PwC indicates that, where all revenues are allocated to debt service, the loan could be paid off within year 23.5 of the TIF period. In addition to the fact that the base case results anticipate repayment within year 23.5 of the TIF period, the Council has attempted to take a prudent view in respect of the assumptions included in the business case for bad debt interest rates and income inflation. Scheduling of part of the investment works can also be delayed until there is certainty regarding the NNDR take. These factors mitigate against the risk of NNDR being insufficient to cover borrowing costs. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 63 of 89
5.2.3 Early Years Interest Gap In the early years of a TIF project there may be a delay between the investment being made and the incremental revenues arising. During such a period debt service (namely interest) costs may arise on the borrowings made to fund the investment which cannot be covered by the revenues available. In these early years it is common in project finance to assume that additional debt is drawn down to pay the interest due with this being rolled up (added) into the debt balance and repaid over the remaining term of the loan. It is, however, a feature of Public Works Loan Board (PWLB) borrowings that interest cannot be rolled up in this way. In the cashflow produced by PwC there is an indicative early year s interest gap of up to 785k over a one year period (01/10/14 30/09/15). The financial model assumes that C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 64 of 89
this amount is rolled up into the loan and repaid over the TIF term in the manner outlined above and on this basis there is still sufficient revenue to repay all debt service costs within year 23.5 of the TIF term. Furthermore this model is based upon existing assumptions around the timing of the capital expenditure and it is the expectation that an element of this interest gap could be avoided through management by the Council of the timing of its capital expenditure and as a result of the agreements in place with the Developer. The Council understands the potential for such an interest gap to arise but considers the quantum of this to be an acceptable and manageable risk in the context of the overall proposal. 5.3 Sensitivity Analysis In order to assess the robustness of the base case PwC have run a number of sensitivities in relation to: Project costs Interest Rates Void Rates For most TIF projects the most significant risk would be in relation to the NNDR identified not materialising or being delayed. This would result in the Council having insufficient revenues available through TIF to service and repay their borrowings. For the Buchanan Quarter project the agreements in place between the Council and the Developer mitigate the risk of revenue not materialising by ensuring that no development progresses until the scheme is 40% pre let by income. In assessing the risk that revenues will be delayed the Council has held extensive discussions with the Developer to understand their development timetable. The Council considers the proposed timetable to be both realistic and robust and takes further comfort from the extensive track record of the Developer in delivering other similar developments across the UK and their commercial incentive to complete on schedule. 5.3.2 below measures the impact of reduced income through voids. 5.3.1 Project Costs An allowance for contingency is already included within the capital costs modelled. For additional comfort two sensitivities have been run with regards to an increase in capital cost: How is the project affected if there is a 10% increase in capital costs? C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 65 of 89
What is the amount of capital expenditure coverable within the 25 year period under the base case? A 10% increase in capital expenditure under the base case would result in the revenues from TIF being insufficient to repay borrowings within the 25 year TIF term. Annual borrowing costs would be incurred for a further three years following completion of the TIF term in March 2039, and the potential early years interest gap increases to 864k. Under the second scenario the model indicates that up to 83.3m of capital expenditure (or 104%) of the identified capital expenditure requirement could be funded within the 25 year TIF term under the Base Case assumptions. Under this scenario the potential early year s interest gap is estimated at 815k over the 12 month period 01/10/14 30/09/15. 5.3.2 Interest Rates Two sensitivities have been undertaken in relation to the interest rate: A reduction in the interest rate to 4.4% for the duration of the project An increase in the interest rate to 6% for the duration of the project Under the first scenario repayment is possible in a total of 22 years and the potential interest gap falls to 690K over the 12 month period 01/10/14 30/09/15. Under the second scenario the revenues from TIF are insufficient to repay the debt in full within the 25 year TIF term. Annual borrowing costs would be incurred for a further 3.5 years beyond the end of the TIF period and the interest gap would be 943k over the 12 month period 01/10/14 30/09/15. 5.3.3 Void Rates/Bad Debt Two sensitivities have been undertaken in relation to the void rate: A reduction in the void rate to 5% for the duration of the project An increase in the void rate to 15% for the duration of the project Under the first scenario repayment is possible in a total of 22 years and the potential interest gap remains per the base case at 785K over the 12 month period 01/10/14 31/09/15. Under the second scenario there is insufficient revenue during the 25 year TIF term to repay the debt and annual C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 66 of 89
borrowing costs would be incurred for a further year following TIF. The potential interest rate gap would be unchanged at 785K over the 12 month period 01/10/14 30/09/15. 5.3.4 Results Summary A summary of the key outcomes of the sensitivities, compared to the base case, is illustrated at table 5.4 below Table 5.4 Results Summary Scenario Capital Expenditure ( m) Repayment Period (years) Potential Interest Gap ( 000) Base Case 80.0 23.5 785 10% Increase in Capital Costs 88.0 Not repayable within 25 years. Annual borrowing costs would be incurred for a further three years following the TIF. 864 Base Case: maximum capital expenditure serviceable within 25 year term 83.3 25 815 Reduction in interest rates to 4.4% 80.0 22 690 Increase in interest rates to 6% 80.0 Not repayable within 25 years. Annual borrowing costs would be incurred for a further 3.5 years following the TIF Reduction in void rates to 5.0% 80.0 22 785 Increase in void rates to 15% 80.0 Not repayable within 25 years. Annual borrowing costs would be incurred for a further year following the TIF 943 785 C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 67 of 89
The table above illustrates the impact of sensitivity analysis. As outlined at section 5.2.2 of the business case the Council has mitigated against potential risks by being prudent in respect of certain assumptions mainly in respect of bad debt, interest rates and income inflation. It is considered unlikely that some of the adverse sensitivities detailed in the table above would persist for the full 25 year term (e.g. void rates/bad debt at 15%). 5.4 Development Funding Gap Through discussions with the developer and independent market assessments undertaken by the Council s agents, there is confirmation that the financial returns required by the Developer are reasonable. Moreover, in the absence of the enabling infrastructure, supported by TIF, it is: Likely that such returns will be at risk to the extent that the current proposals would not be taken forward Highly unlikely that any alternative scheme of a comparable size or nature would be taken forward within the City Centre 5.5 Agreement with the Scottish Government The proposed terms which have been negotiated between the Council and the Developer have minimised the risk to the public sector. The Developer will only commence the extension to Buchanan Galleries once 40% of the new ERV has been pre-let. Where the Developer undertakes public infrastructure works on behalf of the Council, such works being procured through OJEU, the Council will reimburse the cost of those works, on practical completion, in the knowledge that the NNDR generated by the pre let income will cover the repayment charge. The first reimbursement of costs will be Q4 2014 and the balance of the public infrastructure works will be completed by Q4 2015. In entering into these overall arrangements the Council is content that it has structured an arrangement with its development partner which will minimise exposure of risk to the Council. What the Council will then require is sufficient surety from the Scottish Government to ensure that NNDR will be successfully directed to the repayments of the prudential loans for the full duration of the proposed TIF terms of 25 years. The Council anticipates the Scottish Government will enter into a into an unconditional agreement or arrangement with the Council (which has not been subject to a successful judicial challenge) that secures in favour of the Council for the period of the TIF, the right to retain the incremental business rates generated within the redline area (subject to displacement). 5.6 Sharing in the Value Creation C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 68 of 89
The Developer has agreed to undertake the works associated with agreed infrastructure subject to allowing for recovery of its professional fees and finance. The Developer will not raise any development profit against these areas of cost. Furthermore, the Developer has fully funded significant preliminary costs associated with the Buchanan Quarter scheme without any certainty that a TIF will be secured. This unsecured risk condition is, in the Council s opinion, a further example of the private sector leading on a complex development process and accepting responsibility for the significant risks associated with major development schemes. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 69 of 89
6 Risk The Council has considered the risks associated with proceeding with the Buchanan Quarter and the extent to which these can be best transferred, mitigated and managed. The issue of risk is considered from the point of view of establishing the powers under which TIF will be established in Scotland, and successfully relied upon by the Council. Secondly, areas of delivery risk are considered. Thirdly, details of key agreements are set out and explained. Finally, the business case explains how risk is being managed by the Council. The Council has carefully considered the powers, authority and basis upon which it will work with the Developer to successfully secure the Buchanan Quarter with the benefit of TIF. 6.1 Areas of Risk At appendix E the register of the Council s perceived risks and actions relating to the transfer, mitigation and management of those risks are detailed. The following commentary addresses the risks in some detail and describes the Council s rationale for drawing the conclusions that it does. The Council s power to borrow the sums required to fund the enabling works by way of prudential borrowing. In summary the Council has the power under the Local Government (Scotland) Act 1973 to borrow insofar as the borrowing would be calculated to facilitate, or would be conducive or incidental to, the discharge of its power to promote well being under the 2003 Act. The Council also has the power under the Local Government (Scotland) Act 1975 (the 1975 Act ) to borrow such sums as may be required for the execution of any permanent work or the provision of any plant. This would include the public realm improvement works contemplated in this business case. Ministerial consent would not be required under the 1975 Act as in both foregoing cases the powers come within the prescribed purposes set down in Schedule 3 of the 1975 Act. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 70 of 89
The recent changes to the non-domestic rates regulations 6 allow local authorities to retain additional NNDR generated by TIF arrangements. Whilst the Council would not be able to retain anything in any given year where there is no additional revenue generated, this business case assumes that Ministerial approval will subsequently be written in such terms to allow an alteration to the non-domestic rates distribution calculation to take account of the new non domestic rates generated within the Redline Boundary referred to at Section 2 of this business case. The method of finance contemplated (a prudential loan from the Public Works Loan Commissioner) is within the authorised categories of borrowing set out in the 1975 Act. Any such borrowing must be compliant with the CIPFA Prudential Code for Finance in Local Authorities. As set out in Section 3 of this business case, the Council has worked with the Developer to prepare a financial model which examines how funding will be made available by the Council at key stages during the overall development process to reimburse the development of agreed enabling infrastructure works. The Council will make available the agreed funding requirement through prudential borrowing which in turn is serviced by the income to be received by the Council via the Tax Increment Finance scheme. 6.2 Asset Creation The use of prudential borrowing in this way gives rise to an asset ownership requirement which needs to be addressed. The ownership position is complicated. There are a number of freehold and leasehold interests to consider some of which need to be varied to meet the Council s asset creation requirements and to satisfy the Developer s site assembly pre-condition. The Council has considered how a suitable asset ownership position can be created which will meet its requirement. The Council believes that the asset creation arrangements it requires are capable of being achieved although it recognises that the co-operation of Network Rail is a pre-requisite to the successful delivery of the TIF scheme. The Council recognises that there are significant benefits mutual to the Council and Network Rail derived from both the Developer s commercial works and the public works funded via the TIF scheme which are as follows: Materially enhanced entrances on the east and west sides of Queen Street Station Improved retail rents from the existing concourse Improvements on the east side of Queen Street Station compatible with the EGIP proposals 6 The Non-Domestic Rating Contributions (Scotland) Amendment Regulations 2010 C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 71 of 89
Material improvements to the free passage of pedestrian traffic between Queen Street Station and all of the areas surrounding the same, including improved pedestrian routes to and from Buchanan bus station The Council is satisfied that Network Rail s aspirations for Queen Street station are aligned with those of the Council for the Buchanan Quarter. The Council perceives the co-operation of SPT as important to the Buchanan Quarter since an element of the public works is in respect of property currently in SPT ownership. If SPT s interest cannot be reconciled with the Council s requirements within an acceptable period then it is anticipated that that part of the development which comprises works currently in SPT ownership will be capable of being removed from the proposals. It is the Council s and the Developer s intention to conclude how best to address the matter of these separate interests as part of the detailed Funding Agreement which will be entered into if approval in principle is secured to proceed with a TIF for the Buchanan Quarter. It will be noted that the Heads of Terms of the Funding Agreement recognise the need for asset creation appropriate to the requirements of borrowing under prudential borrowing requirements as a condition precedent. As pointed out above, SPT s participation is not essential to the successful delivery of the Buchanan Quarter. The Council recognises that at the point when the Council enters into the Funding Agreement it is not commercially realistic for the Council to impose a precondition which requires a level of pre-let units to equate with a level of new non-domestic rates which will deliver sums sufficient to service the debt and believes that there is a risk attached to this but that the level of this risk is acceptable to the Council. The Council has come to this view because: The Council is satisfied that before the extension of Buchanan Galleries commences the Developer will have pre-let 40% of the retail space (by income) That percentage of pre-lets deliver a degree of certainty in respect to the retail demand of Glasgow. That the heads of terms for the Funding Agreement give to the Council an acceptable level of comfort that the tenants under the pre-let contracts will fit out the premises let to them expeditiously so that there is no anticipated extended period during which tenants are receiving relief from the payment of non-domestic rates. That the developer has a track record of pre-leasing commercial developments. That the obligation to fund is limited only to the Essential Works and therefore that the timing of the delivery and funding of the balance of the works is within the Council s control C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 72 of 89
That the Developer has a real interest in running a successful shopping centre with very few voids That the Developer s demonstrable experience in retail is strong evidence of the likely success of the developed shopping centre 6.3 Third Party Challenges to TIF The Council has worked alongside Scottish Futures Trust to understand how the capture of NNDR will operate. The Council is making this application to be considered as a first phase pilot project under which the capture of NNDR for TIF purposes will be secured through powers provided by the Local Government Finance Act 1992 (The Act). The Council is satisfied that Schedule 12 of the 1992 Act relates to payments to local authorities by Scottish Ministers with paragraph 10 relating specifically to Non Domestic Rating contributions. The Council is making this business case submission on the basis that the Scottish Government has made a Regulation in the form of a Scottish Statutory Instrument (SSI) allowing the Council to withhold sums from the NNDR it collects prior to remitting the remaining NNDR to the Scottish Government.. The Council has contemplated the possibility that notwithstanding the extensive consultation process which has been undertaken, there may be an investor, an occupier or interested party which may wish to challenge the validity of the proposed TIF scheme in its application to secure the development of the Buchanan Quarter. The Council is mindful that a third party may seek to judicially review the decision of the Scottish Government to promote TIF schemes in the manner being adopted or the Council for its participation in the Buchanan Quarter TIF. Having considered this matter, the Council is satisfied that the concept of a Buchanan Quarter TIF has been a matter of public knowledge for some time. The Scottish Government s intention to promote TIF schemes more generally in Scotland and the decision by the Council to proceed with broadly this scheme was originally considered in January 2010 and more recently is expected to be reaffirmed by decisions taken by the Council Executive Committee on 27 October 2011. On this basis, it is the Council s considered opinion that any judicial review would have to overcome the hurdle of challenging on the grounds that the Council had acted illegally or irrationality or there had been some procedural impropriety and the Council is satisfied that none of these circumstances apply. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 73 of 89
As demonstrated elsewhere in this business case, the Council has considered the proposed development and the utilisation of a TIF scheme and is satisfied that the qualitative justification for proposed public works and the Council s investment in them is robust and that there will be consequential economic and social benefits beyond the confines of the Redline Boundary and the City Centre. As part of the survey the Council ensured that the views of parties who might be expected to perceive the development as not being favourable to them were incorporated in the results of that survey. The Council interprets the results of the survey as being supportive of the Council s justification. The Council will continue to engage with the parties revealed in the survey as not being in favour of the proposal. 6.4 Procurement The Council considers that the Developer has a unique position regarding the regeneration of the Buchanan Quarter: as explained elsewhere in this document: it is the owner (tenant under a long head lease) and operator of the Buchanan Galleries. it is committed to the extension of the Buchanan Galleries which will generate new NDR, which in turn gives the Council the confidence it will be able to repay the borrowing for the Eligible Works. The relationship between the Eligible Works and the works being carried out by the Developer in relation to the extension of the Buchanan Galleries is such that given their nature and location they require to be planned and carried out in conjunction with parts of the development of the commercial part of the development as a single project. It is a fundamental element in the analysis of the works which comprise the Eligible Works that they and the Developer s works are so inter-related and interdependent that control over the delivery and phasing of the same requires to rest with one party since the risks attaching to the separation of that control expose the Council and Developer to delays in completion and/or additional costs. If the works were to be undertaken by two separate contractors, due to the complex nature of the works and the connection between the public realm and the physical structure of the building, there would be ongoing conflicts which would result in dispute, delay and Health and Safety issues. Any dispute and delay between contractors would impact on the completion date of the project resulting in significant cost overruns and claims. This test will continue to be applied in the analysis of the works through either or both of the Project Governance Board and the operational monitoring group. Project works which are not of this type will be procured by the Council in line with the Public Contracts (Scotland) Regulations 2006 ( the Regulations ). Given the above, the Council has considered the relationship between the Eligible Works and the works being carried out by the Developer in the context of its proposed arrangements with the Developer having regard to the Regulations, and particularly whether the arrangements are likely to fall within the definition of a public contract. It is recognised that the law as it applies to agreements of this nature is evolving through decisions of the Courts. However in the particular circumstances here, the Council believes that they do constitute a public contract and that the Council is entitled to C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 74 of 89
rely on the regulation 14 (a) (iii) of the Regulations (Use of the negotiated procedure without prior publication of a contract notice) where for technical reasons the contract may be awarded only to a particular economic operator i.e. Developer. It is the Council s intention to publish a voluntary ex ante transparency notice to remove the risk of the arrangements with Developer from being declared ineffective under the Regulations. Furthermore, the arrangements between the Council and the Developer will have a contractual mechanism whereby the Developer will comply with the Regulations on behalf of the Council when procuring construction works in relation to agreed Eligible Works. This arrangement will ensure that transparent accounting arrangements are put in place from the outset and that there is a certainty on the regulation of the use of public finds, namely that they are being made available to meet the cost of agreed eligible works in accordance with the agreed cost plan, specification and associated fees and finance. Procurement will be a constant on the Project Strategic Steering Group s agenda. 6.5 State Aid The Scottish Government s State Aid Unit has been apprised of the proposal and will advise the Council on issues relating to the project s compliance with European State aid rules. As referred to elsewhere, the Council is making a number of capital payments to secure the agreed enabling infrastructure works. For the purpose of legal agreement between the Council and the Developer, this has been referred to as the Financial Contribution. In the Council s opinion, the basis upon which the Financial Contribution is to be raised is largely irrelevant to the question of State Aid for the purposes of Article 107(i) of the Treaty of the functioning of the European Union. It follows that the fact that the Council proposes to raise public monies through prudential borrowing underwritten by tax receipts from projected future increases in NNDR is not of itself a relevant consideration for the purposes of establishing whether the financial contribution gives rise to the award of State Aid. The Council acknowledges that the Financial Contribution will be at risk of constituting State Aid if an assessment of the contribution leads to the conclusion that: I. Contribution confers an economic advantage selectively on the Developer exclusively to the Developer s benefit without there being any exposure to competitive tendering. II. III. An advantage distorts or threatens to distort competition in an affected market. The distortion or threatened distortion of competition affects trade between member states of the European Union. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 75 of 89
The State Aid Unit has been asked to provide guidance on potential State Aid risks associated with the proposed arrangements. However, there would appear to be grounds for supporting the position that State Aid could not reasonably arise in the proposed circumstances because: I TIF is expressly being made to fund the enabling infrastructure works associated with public realm improvements on land and property which will (through the asset creation arrangements outlined above) remain in the control and ownership of the Council. II The enabling infrastructure works will be competitively tendered in accordance with the Public Contracts (Scotland) Regulations 2006. III IV V VI The key commercial phase of the Buchanan Quarter scheme being constructed over land which is principally owned by Network Rail. This land has been offered by Network Rail through an open tender process. The tender process commenced with an advertisement on Friday 10th December 2010 in the Official Journal of the European Union. The Developer was selected as preferred partner on 2 September 2011. To reiterate, this scheme is entirely dependent on the TIF being approved. Buchanan Partnership's tender submission is conditional upon TiF Funding approval. In the absence of TIF, the extension to Buchanan Galleries will not proceed. As a consequence, the Buchanan Galleries multi storey car park will remain in its current location and the expansion and associated improvement works to Queen Street Station will not take place The Developer will undertake those elements of the proposed enabling infrastructure works which are best contracted by the Developer on the basis that it recovers all contracted sums, associated professional fees and development finance. The Scottish Government State Aid Unit advises that the project should be designed so that the Developer will not gain economic benefit from its involvement in these works. The Developer will not be exempt from any statutory contributions required as part of the planning process. The Developer has an existing ownership in Buchanan Galleries shopping centre and associated land and property comprising the Atlas site (185-221 Buchanan Street). It is the additional economic development which will take place mainly on the land and property of the Developer which will provide the uplift in NNDR which will enable the TIF model to operate. In this sense, the special economic position of the Developer means that other than through Compulsory Purchase, the Council cannot successfully bring forward the Buchanan Quarter project other than through the proposed Funding Agreement as agreed between the parties. The Scottish Government State Aid Unit advises that a project of this magnitude must be thoroughly assessed against the State Aid criteria, so the Council and the Project Strategic Steering Group throughout the Buchanan Quarter project will work with the Unit to reduce the risk that funding is not State Aid compliant. As it currently stands, there are strong grounds for arguing that the financial contribution is not sufficiently material to distort or threaten to distort competition in a way that potentially affects trade between Member States of the European Union. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 76 of 89
The Council is conscious that the proposed arrangements are still at a relatively preliminary stage and that the approval of the Business Case is the beginning of the journey. As set out in more detail below, the proposed Memorandum of Understanding and Heads of Terms will in due course need to be worked up in to a detailed Funding Agreement. At each stage in the Agreement process, the Council will consult with the Scottish Government s State Aid Unit to ensure that State Aid compliance is satisfactorily achieved. 6.6 Changes in tax regime/borrowing restrictions Changes in the NNDR regime or the introduction of borrowing restrictions on local authorities could mean that: The Council s ability to service loan repayments for the TIF scheme is adversely impacted upon because: The level of non-domestic rates received may be reduced or The level of borrowings to support the TIF scheme could limit the Council s ability to borrow in the future The Council s view is that with government support of the TIF scheme it would be reasonable to anticipate that if there were such changes introduced then a new rating regime or borrowing restrictions would need to recognise the liabilities assumed by the Council under the TIF scheme and build into any changes transitional arrangements to mitigate any adverse consequences for the Council. Scottish Futures Trust is supportive of this position. Discussions are ongoing with the Scottish Government in respect of any potential impact of the five-yearly review of rateable properties. As guidance stands, any impact, either favourable or adverse, would be for the account of the authority although significant impacts would require consideration by the TIF Executive (SG, SFT, GCC). The Buchanan Quarter is a high priority investment for the Council which will result in benefits over the long term for the City Centre, in addition to the short and medium term advantages generated by the TIF scheme articulated elsewhere in this business case. Consequently the Council believes that these real benefits and advantages outweigh the risks associated with any future changes in the NNDR regime or imposition of borrowing restrictions. 6.6.1 Destruction of Buchanan Galleries in whole or material part throughout the period of the borrowing. The Council recognises this as a risk because most of the NNDR is concentrated on this building. The Council envisages that the Funding Agreement needs to address the situation where the Buchanan Galleries is damaged beyond beneficial occupation during the loan repayment period. This is a relatively remote circumstance and it is anticipated that the Agreement shall not be overly prescriptive and that the title shall have imposed on it an obligation to insure for reinstatement value and a repair and rebuild obligation having regard to normal development obligations of this type and the C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 77 of 89
context of the TIF scheme. It is anticipated by the Council that any temporary gap in the available NNDR is catered for either by an extension of the loan term and/or the suspension of the loan payment and/or by insurance (subject to its being available on a similar basis to a loss of rent insurance) assuming that an extension of the loan term cannot be agreed. In the event of an extension of the loan term beyond the envisaged TIF period of 25 years being required in this circumstance and insurance not being available on commercial terms then the Council envisages that through the TIF Executive, the Scottish Government will be willing to renegotiate the arrangement/agreement with Scottish Government. 6.7 Key Delivery Risk Considerations The Council has prepared a detailed schedule of enabling infrastructure works items. This is attached as Appendix F. It can be seen from the schedule that the proposed enabling infrastructure works have been clearly aligned to the overall development programme and each of the proposed development phases. This explains how and when each of the TIF related infrastructure works will be undertaken having regard to the commencement and completion of each of the commercial development phases. The basis for agreement between the parties is that the Developer will proceed with the Buchanan Quarter scheme subject to a number of conditions precedent. These are set out in the Heads of Terms which are referred to in more detail later in this Business Case document. 6.7.1 Market Context It will be noted that in these more uncertain economic and property market conditions, there are very few major commercial development schemes proceeding anywhere in Britain. The few schemes which are proceeding include retail-led development proposals in Newbury, Stratford, Wakefield and Leeds and 185-221 Buchanan Street. The Glasgow scheme, which is already almost fully let (by income) will form part of the wider Buchanan Quarter destination (albeit the NNDR generated is excluded for the purposes of TIF). Developers and their investment partners are taking a much more risk adverse attitude to committing to new development schemes having regard to the risks involved. The Stratford City scheme being undertaken by Westfield was committed before the downturn in the property market and will be completed in conjunction with the adjacent Olympic Village and Stadium. In Newbury the Council has waived a substantial financial arrangement in order to initiate development, and it remains to be seen how quickly the main building contract works are let. In Wakefield the Trinity Walk scheme is being progressed following Council intervention after the original Developer (Modus) went into administration and the Council retendered the part built development scheme. In Leeds, the Developer benefits from there being two established retail anchors which do not have to be secured at significant cost to the development. 6.7.2 Buchanan Partnership (The Developer) C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 78 of 89
The Developer has a long term commitment to investment in Scotland. Its retail portfolio includes the Bon Accord and St Nicholas Centres in Aberdeen, two shopping centres in Livingston, a retail park in Dundee, the St James Centre in Edinburgh and of course its investment proposals in Glasgow. In the context of current and anticipated market conditions, the Developer has assembled an experienced project team to successfully ensure that the Buchanan Quarter is developed in its entirety. The Council is content that the Developer has considered the possibility of cost overruns in the preparation of its current appraisal. The Council is also content that the Developer has considered delays in commencing and completing construction in accordance with the proposed development programme. Importantly, the Developer has accepted full responsibility for these matters. In summary, based upon information currently available, and the level of scheme design achieved, with the benefit of TIF, the Developer is hopeful that its development appraisal will show a projected Internal Rate of Return, which is line with its requirements and expectations. Strategically, the regeneration of the Buchanan Quarter fits with the Developer s strategy of extending and enhancing the retail and leisure offer to existing assets. Working in partnership with the Council, the Developer is confident in delivering a joint vision of an enhanced Quarter, facilitated through the use of TIF. The Developer has provided research undertaken in appendix A by DTZ/CBRE, which explains how retailing has become ever more polarised in the UK s top 50 major centres over recent years. These major regional and sub regional retail centres have become ever more dominant as retailers have invested in these key locations to a much greater extent than smaller regional and local centres. Glasgow is recognised as the premier retailing centre outside of London and it will benefit from this polarisation in key retail markets notwithstanding the anticipated growth of internet shopping. DTZ and CBRE have examined the current retail market in Glasgow and quality of retail demand. The key characteristics of the Developer s Leasing Strategy can be summarised as follows: The Buchanan Quarter scheme is of a size and configuration to meet identified retailer demand. Retailing is a dynamic industry, and major retailers are increasingly focusing new stores in the top 50 retail centres. There is an ongoing trend towards larger format stores, efficient trading configurations, brand positioning and leisure experience. Delivering tenant mix, quality of new retailers, new and international brands and emerging retail trends are all key considerations. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 79 of 89
There is currently some 97,000 square metres (over 1 million square feet) of unsatisfied retailer demand for new and improved premises in Glasgow City Centre (excluding Marks and Spencer which is currently occupying an undersized store and Selfridges which has a new store requirement). Despite a City Centre stakeholder concern about letting existing City Centre units the focus of the strategy is to supply units that are of a scale and configuration to meet identified demand The Developer has considered the possibility that its target occupational terms will not be secured. The Developer has a pre-condition requirement that the extension to Buchanan Galleries will not commence without first having secured 40% of estimated rental value of the proposed accommodation. The TIF financial model has been constructed to provide the Council with additional headroom to allow for potential running voids which may arise during the term of the TIF. This has been explained in more detail in Section 5 of this business case document. In going forward, the Developer has acknowledged the possibility from time to time retail units may become vacant as tenants in the Buchanan Quarter scheme choose to relocate or cease trading will be subject to a reorganisation of its business, which makes the property surplus to requirements. The Developer has acknowledged in its financial model the possibility of void rates arising as discussed in this paper. The Developer otherwise accepts that it will stand as surety on the payment of NNDR in the usual way as the landlord on these properties. It will be noted that NNDR will ordinarily become payable by a landlord once a property becomes vacant and a tenant ceases to trade (subject to relief). GVA Grimley was commissioned to examine the letting agents stated retailer requirements and assess how far these could be met from available accommodation in Glasgow City Centre. The GVA Grimley report is attached as appendix B. The key findings of the GVA Grimley report are: The survey has examined both primary and secondary retail areas in the City Centre. Vacant premises have also been surveyed. The average size of existing retail units in the City Centre has been appraised. Total vacancy across the core City Centre area has been assessed as circa 18,570 square metres, comprising 67 units which equates to approximately 8.3% of total retail accommodation. Proposed additional floorspace in Glasgow City Centre has also been appraised. There are presently two development schemes with planning consent. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 80 of 89
Edge of centre schemes have also been considered including Silverburn shopping centre and Glasgow Harbour. Stated retailer requirements (circa 252 retailers) represent an average unit requirement of 403 square metres. Total expressed demand equates to circa 97,000 square metres (over 1 million square feet). Under current Buchanan Quarter proposals assuming that 100% of retailer requirements come to fruition there is sufficient demand to occupy all current vacant floorspace (assuming 5% running void) within the study area and all of the proposed Buchanan Quarter retail and restaurant floorspace. As can be seen, the Developer has elected to progress a commercial scheme within the Buchanan Quarter of some 55,000 square metres. While it has outline planning consent for 73,500 square metres of new expansion floorspace at the Buchanan Galleries, it has concluded that notwithstanding high levels of pent up demand for new purpose built retail and leisure retail accommodation, it is prudent to proceed on a more modest basis which clearly has a sustainable level of occupier demand. 6.7.3 Conclusions The evidence available confirms that even in an uncertain economic environment, there is sufficient latent demand for new purpose built modern retail and leisure accommodation in central Glasgow to withstand a fundamental shift in economic conditions. In any event, the arrangements proposed place the risk of letting the proposed accommodation with the Developer, the risk of undertaking works with the Developer and the risk of completing these works to the satisfaction of the Council with the Developer. The financial model described in Section 5 explains how the Council has considered the necessary headroom required to provide a cushion between the collection of anticipated NNDR and the required prudential loan. Here again, the Council is content that the risk associated with the NNDR satisfactorily financing the proposed prudential loan term has been properly considered as part of the Heads of Terms negotiation. 6.8 Key Agreements The Council and the Developer are close to achieving an agreed form of a Memorandum of Understanding, under which the principles of progressing a partnership to secure the successful completion of the Buchanan Quarter scheme are legally documented. In summary the Council has the power to enter into an agreement with the Developer to facilitate the redevelopment of the Property by exercising its powers to advance well-being under the Local Government in Scotland 2003 Act (the 2003 Act ). C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 81 of 89
In summary, the draft Heads of Terms will explain that the parties to the Funding Agreement will be the Council and the Developer. The Funding Agreement will be entered into as soon as possible after an in principle approval has been provided by the Scottish Government to the proposed TIF scheme. The Funding Agreement will relate to a defined development, eligible costs and eligible works and the Financial Contribution. The conditions precedent to the Funding Agreement will be concerned with: I. The hypothecation condition (which is concerned with securing the proposed capture mechanism relating to NNDR) II. III. IV. The prudential borrowing condition (where the Council enters into the loan arrangements required to prudentially borrow the required sums) Land assembly condition (where the Council and the Developer have completed acquisition of sufficient rights and land and buildings to enable the development to proceed in its entirety) The planning condition (comprising the approval of reserved matters pursuant to the proposed planning application and permissions) V. The pre-letting condition which shall mean 40% of the ERV of extension will be pre-let VI. VII. The headlease consents condition Buchanan Partnership Board approval to proceed at an acceptable Internal Rate of Return The Heads of Terms (and the Funding Agreement to follow thereon) will explain how the financial contribution arrangements will operate and how payments will be drawn down in accordance with agreed milestone events. The Heads of Terms (and the Funding Agreement to follow thereon) will explain the Developer s obligations to carry out works and provide the Council with inspection in auditing processes. The proposed schedule of eligible works is provided for as part of the Heads of Terms document as is the proposed capture mechanism. As set out above, a key third party property interest which has been addressed is the right to develop over land currently owned by Network Rail and comprising the North Hanover Street surface car park site, adjacent to Queen Street railway station. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 82 of 89
The Developer has been selected through a competitive tender process by Network Rail as the preferred partner to redevelop Queen Street Station. The Developer has a number of 3 rd party agreements to enter into in order to facilitate development. Delivery of a commercial agreement with SPT is not conditional upon the development proceeding. The Developer will keep the Council fully advised of progress in respect of the relevant negotiations. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 83 of 89
7 Delivery & Governance The Council is committed to securing the delivery of the Buchanan Quarter development. The Buchanan Quarter forms an integral part of the Council s 10 year economic development strategy for the City. The Buchanan Quarter comprises the important public sector amenities as well as extensive commercial properties. In considering suitable governance arrangements, the Council has been keen to ensure that there is an overarching delivery in governance structure that provides a cohesive overall management structure, whilst not inhibiting the Developer from progressing key matters relating to the delivery process. 7.1 Project Strategic Steering Group The Council will establish a Strategic Steering Group (SSG) that will be responsible for ensuring the economic and social impact of the scheme is maximised to the benefit of Glasgow and Scotland. In addition to key officers from the Council, delegates from the Scottish Government and SFT will be invited to participate in and/or advise this group. The SSG will meet on a biannual basis with such other additional meetings as shall be required and agreed between the parties. 7.2 Project Advisory Group The Council and Developer have agreed that there will be a Project Advisory Group to oversee the progress of the Buchanan Quarter scheme. The Project Advisory Group (PAG) will comprise representatives from the Council and representatives from the Developer. It will ensure the terms of the Funding Agreement (as between the Council and the Developer) are fully compliant, monitor progress of the development programme and ensure that the undersigning and economic lengths being sought are successfully secured. The PAG will meet on a monthly basis with such other additional meetings as shall be required and agreed between the parties. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 84 of 89
The structure of the Project Advisory Group is set out below: GCC BP PAG Commercial Works Enabling Works The Buchanan Quarter scheme comprises both commercial development and completion of a number of enabling infrastructure works principally concerned with public areas, facilities, amenities etc. Overall responsibility for the Buchanan Quarter development will rest with the Developer working in consultation with the Council and at all stages. These reporting and auditing provisions are provided for in the Heads of Terms. The Council will monitor progress with the Buchanan Quarter development having regard to its strategic objectives for any vital and viable commercial City Centre. For this purpose, the Council will oversee the Buchanan Quarter project through the enabling works project team that will be led by the Council. The Buchanan Quarter represents an opportunity to secure new operational facilities (including improvement to the Royal Concert Hall, improved integration with and entrances to Queen Street Station and wider public facilities and public realm including upgrading of pedestrianised areas of Buchanan Street and George Square). In these circumstances, the Council will constitute three project teams concerned each with: I. New operational facilities C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 85 of 89
II. III. Integrated infrastructure works Wider public realm improvements Each of these groups will be led by the project manager supported by appropriate consultants. Additional consultancy support will be provided when required. The Developer will fulfil its development obligations through the appointment of Land Securities as project manager. Land Securities will appoint all necessary consultants who will provide appropriate duties of care to both the Council and the Developer. The Developer will appoint a principal contractor to undertake the development works and will ensure that sub-contractors are appointed in accordance with normal terms and conditions. 7.3 Procurement and Value for Money The Developer is experienced. In addition to an extensive retail investment portfolio in Scotland (referred to above) it has been responsible for successfully completing major retail-led development schemes including Cabot Circus (Bristol), St David s (Cardiff), Princesshay (Exeter) and Bull Ring, (Birmingham). In each of these projects the Developer worked in partnership with public sector partners including Bristol City Council, Exeter City Council and Birmingham City Council. The Developer would expect to procure the principal contract from one of the country s leading building contractors, within which value for money will be delivered and appropriate quality controls can be assured. 7.4 Operational Considerations A key aspect of the overall management will be to ensure that there is a seamless and effective process by which agreed works are completed by the Developer and the requisite capital payment is made to reimburse the Developer for eligible works on production of agreed completion certificates. Likewise, the Developer will also need to manage carefully the letting of commercial accommodation to ensure that incoming tenants pay the requisite NNDR as quickly as possible and in accordance with normal practice. Parties have agreed that there will be a notice and counter notice process by which the Developer will confirm the completion of works and agree forward funding requirements where upon the Council will be provided with suitable confirmation that the necessary NNDR is secure to underwrite the C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 86 of 89
cost of the prudential loan. This financial model will form part of the Funding Agreement and will be an iterative and live document which will be refined during the life of the development process. Elsewhere the Developer has already provided the Council with confirmation that the Council will have its various professional fees underwritten, where it elects to appoint specialist consultancy support. These appointments will be approved in advance and reimbursement will be made by the Developer in accordance with properly authorised invoices. The Council has confirmed that necessary internal resources are available to ensure that the Buchanan Quarter scheme will be successfully implemented. The structure of the proposed partnership will ensure that the Developer successfully undertakes all agreed development works in accordance with the development programme, details of the financial model and the appointment of suitably qualified consultants, contractors and financial partners. The Developer s requirement for an appropriate and satisfactory commercial return relates to the completion of commercial accommodation. The Developer s ability to draw down capital funding from the Council depends on the satisfactory completion of agreed works in accordance with the specification and cost plan. The overall onus on contract performance lies with the Developer although the Developer will be concerned that the Council acts reasonably in giving its approval to completion of works and the overall development programme is met and that specifications are not varied without due consideration to additional cost arising. 7.5 Key Personnel The Council is comfortable that there will be successful continuity throughout the Buchanan Quarter TIF process as far as practicable. It is anticipated that a core team representing the parties will comprise Buchanan Partnership, Glasgow City Council, Scottish Futures Trust and will be responsible for overseeing and ensuring the Buchanan Quarter TIF can be successfully implemented in accordance with the Funding Agreement. C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 87 of 89
8 Next Steps and Approval The Council is pleased to make this business case proposal to the Scottish Government. It believes that it has made a clear case for TIF being successfully enacted to deliver the wide-ranging economic benefits that will be secured for the Buchanan Quarter scheme, Glasgow city centre, and the wider region. The Council will consider this business case proposal at Executive Committee on 27 October 2011 and fully supports this proposal being presented to Scottish Government for consideration and approval. The next step in this process is for Scottish Government approval of this business case to be provided as quickly as possible to enable detailed arrangements to be successfully entered into ahead of a planned first phase commencement date of March 2013 to enable station public realm improvements by June 2014 (ahead of the Commonwealth Games). With the benefit of Scottish Government approval to proceed with the Buchanan Quarter TIF proposals, the Council will be working with the Developer to ensure: I. Completion of the Funding Agreement under which the detailed TIF financial terms will be fully documented, pre-development conditions will be set out and associated development matters will be fully explained in the usual way II. III. IV. The Developer will need to complete the site assembly process including the acquisition of land and property from Network Rail The Parties will formalise the proposed governance arrangements explained in this business case document The Parties will complete the various legal agreements required to put in place the necessary asset creation arrangements to enable prudential borrowing to be successfully made available in accordance with the proposed funding terms In terms of this Business Case, the Council is seeking approval from the Scottish Government to the right to retain the incremental NNDR created by the TIF (net of displacement) in support of the project borrowings. END OF DOCUMENT C:\Documents and Settings\mcguinnessj\My Documents\Glasgow TIF Business Case V6 SFT FINAL REPORT 6dec11 REDACTED.doc Page 88 of 89
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