Public Accounts Committee
Inquiry into Regeneration Investment Fund for Wales
Response from Mr Langley Davies (12 November 2015) to Darren Millar AM, Chair of Public Accounts Committee, letter of 5 November 2015
I have addressed my responses to you in the
hope that they will be passed on to the Minister and other members
of the PAC.
In terms of responses to date I was asked some time ago if I wished
to comment in writing on the findings of the WAO in their report on
RIFW and latterly on the PAC hearings to date. I have not read the
WAO report in any great detail and have not had the time to devote
to watching the sessions of the PAC so I am not in a position to
provide general comments on these matters.
I am, however, happy to comment upon specific matters if I am
able.
In response to the Chair's questions:-
1. I first became aware that the asset portfolio was to be offered
for sale in 2010. There were press announcements around the
transfer into RIFW of approximately £20m in WG assets, which
were to be converted to cash, and £10m in cash as part of a
matched funding process.
My interest in the portfolio came about in late 2010 because I had
previously sought to purchase some land in Imperial Way, Newport,
which formed part of the Imperial Courtyard site from WG. The land
was to provide further car parking spaces for some 95000 sq ft of
office space that I had developed from 2004-2006 on Imperial Way. I
had dealt previously with King Sturge who were the agents on the
Imperial House and Courtyard sites at that time. King Sturge
informed me that they were no longer agents on these assets and
referred me to LSH as the new agents.
I had dealt previously with LSH as they were joint letting agents
with Fletcher Morgan on our existing office space and I was
directed to Mr Lee Mogridge to discuss the Imperial House and
Courtyard properties. This was my first professional association
with Mr Mogridge.
I met with Mr Mogridge in January,2011, and I was informed
that the Imperial House and Courtyard assets were part of a
portfolio of assets being brought to the market by RIFW and I
expressed an interest in the assets (and the wider portfolio) when
further information was available through the LSH sales process. I
was informed that LSH would be running a competitive process for
the sale of the assets.
2. LSH had acted for me on bank valuation work, office agency work
and possibly some rates related work in respect of the Imperial Way
properties probably from 2006/7 onwards. I would have to ask them
for specific engagements and dates but it would have been around
that time.
The nature of my relationship with LSH is (and always has been) a
purely professional relationship. My dealings have been on standard
professional terms and I have not had any separate engagements or
dealings with any LSH employees in a personal capacity. I have been
engaged in property development in South Wales for some 25 years
and have engaged many other property professionals on the same
basis during that time.
3.This statement suggesting that SWLDL would not wish to undertake
a "formal valuation" of the assets in isolation could be subject to
misinterpretation.
It was not the case that SWLDL did not wish to undertake a formal
valuation of the assets prior to completion of the purchase. In
fact the contrary is true and SWLDL did undertake a formal
valuation process. I understand that the Savills valuation
commissioned by SWLDL and disclosed to WAO is the only
contemporaneous valuation of the assets. This valuation confirmed
to the Directors of SWLDL at that time that the price offered (and
Paid) by SWLDL was in Savill's opinion a fair market price and was
in fact at the higher end of the price range that they would have
expected at that time for a portfolio transaction.
The specific issue that this quote relates to was the requirement
for RIFW to ensure that they had adequate security for any
outstanding payments due over the two year period after the deal
completed.
As part of our on-going price negotiations with Mr Leo Bedford of
RIFW we had agreed a higher price than originally offered for the
assets on the basis of an instalment related payment deal. At this
time the deal was £22.5m (some assets were removed by the
time we completed 12 months later) which was to be paid as
£12.5m on completion and two further annual instalments of
£5m.
When we eventually moved to detailed contracts RIFW required that,
if we were to sell any of the portfolio assets, the entire
portfolio would have to be revalued on each sale event to ensure
that RIFW's security position for the outstanding monies was not
adversely affected by such a sale.
Whole portfolio valuations on every sale would have been expensive,
circa £10,000 per valuation. In addition, the sales process
would have been time consuming if RIFW had to agree every sale and
subsequent valuation (effectively a veto over our selling of any
portfolio assets for two years) and this might have prejudiced our
ability to complete sales of individual properties.
Given that the portfolio deal on day one was satisfactory in terms
of value to both sides and that there was a high level of equity
cover (headroom) for RIFW (£22.5m of asset cover against
£10m of outstanding monies) SWLDL was of the view that
revaluations to verify security cover on each sale were
unnecessary. The future payments were already being guaranteed by
Barclays Wealth Trustees in Guernsey in any event.
We eventually resolved this valuation issue by agreeing to remit
50% of any proceeds received on any asset sales to RIFW whilst
monies remained outstanding to them over the two year period and
Savills, at SWLDL's cost, would also provide a brief update to
their initial report to ensure that RIFW's security position
remained at an acceptable level.
Taking this approach was recognised by all parties as providing a
secure structure to RIFW and one where formal valuations on an
on-going basis would not be required.
4. Monmouth.
a. The current position in respect of Monmouth is that we have not
yet completed on the sale of the land earmarked for residential
development. In order to complete on the purchase RIFW need to
remove their charge on the land relating to the overage. The
overage payable is as yet not agreed between the parties but is
progressing and given the formula and procedure contained within
the legal agreements will be resolved. We have requested RIFW to
remove their charge on the land the subject of the sale and
complete and for them to hold all monies received in Escrow until
any overage issues are resolved. That would obviously be in the
interests of all parties and carries no risk for RIFW. The planned
completion date was in early October.
b. This disposal is for the residential element of the site and
comprises some 35 acres with a further 3 acres required for access
roads. There is further amenity land for drainage and ancillary
residential uses as part of the planning consent which will be
transferred as part of the sale at nil value as it has no
commercial value. There will be some remaining agricultural land
which has no planning consent and has a nominal value and there is
remaining employment land of some 13 acres as part of a mixed use
planning consent which will remain with SWLDL.
In value terms it is our assessment that that around 85% of the
site's total value is made up of the residential development land
which is subject to the overage provisions and the sale to BDW
Trading Limited.
c. The sales proceeds are payable £5,750,000 on agreement of
the overage following completion, £3,125,000 on the first
payment anniversary and £3,125,000 on the second
anniversary.
d. Overage will be calculated at 50% of the sales proceeds less
allowable costs and an agreed base value. The overage will be paid
on a pro rata basis on the same payment profiles as the
consideration received (outlined above). Therefore the first
overage payment will be remitted to RIFW following receipt of
monies from BDW post completion and agreement of the overage.
I hope this is useful and would be happy to provide further
information if I am able. As I hope you will gather from the
fullness of my answers I wish to assist with the Committee's
inquiry as the facts demonstrate that the transaction was one that
took place on commercial terms and at a fair market price at the
time of the deal. As you will appreciate from my comments on the
overage provisions above, there is potential for significant
additional value to accrue to RIFW on both the Monmouth and Lisvane
sites.
Regards
Langley Davies
Director – South Wales Land Developments Limited