Otterpool Park Update: Council release map and cashflow model for Phase 1 of project

Otterpool Park, the controversial development where Folkestone & Hythe District Council, via its company, Otterpool Park LLP, wish to build up to 10,000 homes, across a 757 hectare site, over 30 years, will turn its first profit of £1.5m, or 1% in 2030/31, according to the council’s business plan.

Otterpool Park is a £2.7bn pound project over 30 years. In today’s money that’s close to £3bn factoring in inflation. And according to the Leader of the Council, the Council haven’t spent a penny on it yet, except they have, £60m and rising.

In 2030/31 it is expected to turn a profit of 1% profit on a £152.8 million of land receipt income, according to the estimates used by the Council’s advisers. To be exact, the sum they anticipate to make, according to their best estimates – £1,507,683 in 2030/31.

A copy of the information released (14 pages) can be found at the bottom of this blog post and is downloadable for the sake of transparency and openess. It is redacted as the council believe some of the information is commercially confidential.

Of course, no construction project makes money from day one. But the council via Cllr Monk has made it clear, Otterpool will make the council rich, beyond the dreams of avarice, but that’s not going to happen until after 2030/31. As the project is expected to run for 30 years, so until 2050, it is only those aged between 0 and 65 who are likely to see any potential financial benefit from the Otterpool development.

That said, given inflation, and interest rates are currently rising, and there are supply chain issues, and labour shortages in the construction industry, we expect the estimated figures come with a hint of optimism bias. Just remember, the costs for Princes Parade have risen from £29m to £45.3m and that’s before the project has started.

The financial modeling applies to phase one only, as is shown in the map below. Each of the numbers in the map represent a plot for development and will be built out across 6 sub phases.  In each of the plots approximate number of houses, flats, retail, leisure and community floorspace, plus employment floorspace are also set out. As has been made clear from the beginning, Phase 1 will take place around Westenhanger Castle and the station. This will allow both the master developer, Otterpool Park LLP, who’s sole shareholder is the council, to maximize the financial uplift of the price of the land when it sold to developers, and for developers to maximise profits on house, flats and retail and employment space, when sold.

It’s now known, across the six sub phases of phase 1, the estimates for houses to be built is 1,395. The estimates for flats is 567. The estimates for employment floorspace is 16,310m² and 27,270m² of retail, leisure, community related floorspace will be created. All this will generate income for the council in the future.

Also in phase one, sub phase four- parcel 5, a 630 place 3FE Primary school will be added and  it maybe necessary to add a further 630 3FE primary school in subphase six – parcel 9 if there is a demand.

But the most important issue is of course the money, or rather the projected cashflow for phase one. Now we must state clearly as per the document released:

“financial numbers are only estimates as they are not based on detailed design drawings that will follow the masterplan completion. No Section 106 Agreement has yet been negotiated with the Local Planning Authority and therefore the ‘S106 Allowance’ shown is an estimate.”

The council granted itself £100m in Nov 2019, for the Otterpool Project. To date they have borrowed via inter authority lending to enable them to purchase the racecourse for £25m and to enable masterplanning and Otterpool Park LLP to function. This leaves £65m left in the kitty to draw down on.

The first phase shows a surplus of £1.5m from land sale receipts of £152.8m, covers all costs of developing the key infrastructure. Some of those costs [estimated as much as £10m] will benefit later stages of the scheme and therefore on a true matching of costs and revenue, the first phase is likely to be profitable in accounting terms.

The peak debt requirement is shown as approximately £65.4m in year 2023/24, so less than a year away.

Given the high investment values and the lack of confidence in the accuracy or reasonableness of the figures in the business case, this looks like an extremely high risk project.

Even with zero percent cost of capital, the profit margin is only 1% after ten years. That is likely to be eaten up by any inaccuracy in the figures, or by the real cost of capital. For example, if the cost of capital is 5.6% or higher, even with the given figures, there will be a negative profit margin. This is feasible at the moment. How likely is it for example that overheads and admin expenses will remain the same at £1.5 million/year for the next ten years – see page 11 of downloadable document below – is simply unrealistic.

According to a former PWC accountant, and auditor of twenty five years standing, they state:

As this is public money, it looks like an extremely risky and irresponsible investment. All that is needed is sustained inflation and continuing interest rate rises for two to three years  – which is likely and possible, the financial modeling will be out considerably. Also let’s not forget Covid has not gone away, and there remains the risk of another pandemic.

Five years ago, we were not thinking about inflation, interest rates or pandemics. Now all of these are realities we live with. We, nor the council have a crystal ball, but given events are getting worse, climate change, wild fires, less water, the risks of building Otterpool Park are real and evident.

One must remember, the Council are bound to provide land for 738 homes a year. Residents must realize that 43% of our district is in a flood plain (Romney Marsh) and 33% is in an Area of Outstanding Natural Beauty (AONB), the council have limited land available to develop on, hence why Otterpool was chosen to enable them to meet their targets, as far back as 2014, as identified in the first AECOM report.

The Council will be using Otterpool Park LLP as the master developer.  LLP’s have a number of advantages for local authorities, including significant tax advantages and that it lies outside of the regulation applicable to local authority trading companies. Thus making it more opaque. We also note there is no statutory guidance applicable for the use of LLP’s by local authorities.  LLP are very well suited to forming joint ventures to deliver local government functions such as land and property development, hence why this type of company was chosen by the council.

So its clear, Otterpool Park, if it receives planning permission – which we suspect is highly likely – will not show any profit until 2030/31. This is normal in large projects. But what is also normal is that costs also rise, and large projects hardly ever come in on target. We do not believe Otterpool will create the sums expected – initially £193m, then between £230m -£270m.

What benefits it might make, will not trickle down to the residents for a long time yet

Without anymore ado, below is the downloadable document set across fourteen pages and is heavily redacted, as the council claim that information is commercially confidential.

Otterpool Park Maps & Cashflow – Redacted

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6 Comments on Otterpool Park Update: Council release map and cashflow model for Phase 1 of project

  1. Not the council “rich, beyond the dreams of avarice”, but Councillors.

  2. The downloadable document has been heavily redacted or in layman’s terms … Monk doesn’t want you the public to see who’s getting the brown envelopes

  3. Why do they think they can build a ghastly development like this in an AONB area, which 98% of local people objected to and still have Monk as leader of the council….why dont they listen to who they are meant to represent and who pays their wages and why dont local people have a say on what they spend our money on !!!!! All of our greenspace and wildlife destroyed to make them rich 🙁

    • shepwayvox // July 25, 2022 at 19:59 // Reply

      The development is not in an AONB. It may impact on an AONB but agin is NOT in one.

  4. This was signed sealed and delivered ages ago, always in the back door no matter the meetings attended by residents same as Martello lakes wouldn’t live in either developments.

  5. This is a very high risk venture and looking at the calibre of the Councillors involved I would touch it with a 40 foot bargepole. You can look at Croydon and ‘Slough councils for examples of what can go wrong.

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