- Finance centre could cost as much as £74 million, warns developer
- Dandara have warned that the project could cost more than the building is worth
- But JDC fight back and say that 13 prospective tenants are interested
- Should the States continue to compete with private developers? Take our poll
JERSEY’S biggest private developer has fired a shot across the bow of a States-owned rival company seeking to build a flagship finance centre at the Esplanade, claiming that the project is doomed to lose nearly £74 million.
Developer Dandara’s comments come amid mounting tension between the organisation and business rivals the Jersey Development Company, which is developing the Esplanade car park site.
Senior sources inside the States this morning said it was nonsense to suggest the JDC’s project would lose money and that this was just another attempt to derail what is a viable building scheme.
For months the JDC has insisted it has companies lined up ready to take office space, but many Islanders have remained sceptical about the scheme and questioned whether nearly 500,000 square feet of workspace is needed at the Esplanade.
Further criticism came last month when workers began clearing trees and bushes from the Esplanade site, with some claiming the work signalled that construction had begun before binding pre-let lease agreements had been signed, as per the JDC’s pledge to the States. Those claims were dismissed earlier this week by Treasury Minister Alan Maclean.
As speculation about the project grows it is also understood that an independent review of the scheme that broadly supports the progress and actions of the JDC has been delivered to the Corporate Services Scrutiny Panel, but has yet to be made public.
This week the first round of comments given to the Corporate Services Scrutiny Panel’s review of the major building project, known as the Jersey International Finance Centre, were published online.
*The JDC wrote: ‘The JDC is in discussion with 13 prospective tenants that cumulatively have requirements for new accommodation totalling in excess of 330,000 square feet. These businesses require new offices within the next five years.’
The company has also said that the project will benefit the Island by creating state-of-the-art modern office space with large floor plates, buildings that receive natural light from all sides in a ‘flagship development’ that will promote the Island’s finance industry.
*Former chairman of Huelin-Renouf Shipping Roger Bale wrote: ‘The purpose of funds raised by taxation is not to do what the taxpaying private sector is able and willing to do for itself. The States must let the private sector take risks (and losses). The States will take 20 per cent of all profit without risk.’
*Andy Barnes wrote: ‘…why are the States getting involved with building on this site in the first place, when there are several property developers wanting to develop other sites along the existing Esplanade front and Commercial Street.’
*Dandara’s report added: ‘It is Dandara’s view that the proposed development does not in any way represent the best (indeed any appreciable) socio-economic value to the States of Jersey on behalf of the people of Jersey.
‘It is Dandara’s view that the proposed development actually represents huge risk (in financial terms) to the public good. It will not be a financial success and accordingly far from making a material financial contribution to the finances of Jersey of £50 million or more, as has been indicated, it will incur material financial loss estimated by Dandara at circa £74 million…’
*C Le Masurier Ltd submitted: ‘The Esplanade site provides office accommodation for 5,000 workers, which equates to 41 per cent of the total number of people employed in the finance industry, who are assumed to move out of their St Helier offices. This potential migration will leave vacant office buildings, some in the centre of town, which are unsuitable for conversion to residential use (many don’t have car parking and/or outdoor space and therefore they cannot meet planning law requirements on the required car parking provisions or more importantly, as its firmly policed, amenity space).
‘Thus the town office buildings will be virtually redundant, their value will drop significantly and St Helier will have a large vacancy rate. The capital value is being sucked out of St Helier and absorbed in the Esplanade. The effect on other town businesses, sandwich shops/restaurants/retailers, is substantial and this can be seen on the eastern side of town at Colomberie and Burrard Street which have all hugely declined.’
In a 34-page report, invited by panel chairman Deputy John Le Fondré, Dandara claim the scheme will lose millions in taxpayers’ money because the JDC’s build cost outstrips the overall net sale value of the buildings.
However, JDC managing director Lee Henry has questioned the objectivity of Dandara’s comments, which come after the private developers were able to secure the Royal Bank of Canada as tenants for their Esplanade scheme next to the Grand Jersey hotel when RBC were widely tipped to be considering moving to the JDC’s Jersey International Finance Centre.
In offering his company’s comments to the scrutiny review, Mr Henry also hit back at claims there is little demand for modern office space proposed by the JDC, saying that the company was in talks with 13 prospective tenants who could occupy 330,000 square feet of space in the next five years.
Addressing Dandara’s comments this morning, Mr Henry said: ‘When looking at such a large-scale, valuable and costly scheme it is quite easy by just putting a few extra per cent and pounds here and there and multiplying by such large volumes to present the figures in that way.
‘We know what our build costs are and our projections on rental from prospective tenants. Dandara are guestimating about that. I do question the objectivity of the comments.’
Dandara’s managing director Martin Clancy would not be drawn on the nature of the rivalry between his company and the JDC. He said that Dandara had been asked to comment on the proposals and had done so.
Mr Henry added that discussions with the 13 prospective tenants were ongoing and at various stages of negotiation.
He said: ‘We’ve got a site here capable of delivering up to half a million square feet and we’ve been open in saying that that’s not going to be generated immediately as the finance centre is a ten-year project. We’re delivering the scheme on a building-by-building basis in response to demand.
‘We will be carrying out the development with a certain level of pre-let agreements.’
The JDC’s submission to the Corporate Services Scrutiny Panel added: ‘The importance of the JIFC development has been recognised by some of the Island’s surveyors that are not associated with the JIFC project, as other developments cannot be physically produced in time for certain tenants’ requirements.
This week the panel uploaded comments they had received as part of their finance centre review to their scrutiny website.
But panel chairman Deputy John Le Fondré said he was not yet sure when the review’s public hearings would begin.
Nine submissions have been uploaded for public viewing so far, with Islanders questioning whether there is a need for the hundreds of thousands of square feet of office space proposed by the development.
Respondents have also raised questions over the States’ fundamental decision to involve itself in the development industry through the JDC.
The review of the finance centre was launched earlier this year, prompting senior members of the JDC to express frustration that their plans were to be investigated at a time when they are attempting to finalise crucial deals with prospective tenants.
The organisation has defended its scheme in a response on the Scrutiny panel’s website.
The JDC said: ‘There is today very limited Grade A office space available (circa 15,000 spread amongst several buildings, which is less than one per cent of the total office stock). ‘This is not a good position for the Island to be in with Jersey Finance and Locate Jersey promoting the Island to new businesses and limited stock available for new entrants.’
It has previously been reported by senior ministers that the 470,000 square foot scheme will yield a return of £50 million to the public purse.
As part of the Corporate Services Scrutiny Panel’s review the group, chaired by Deputy John Le Fondré, asked Dandara to give a response to the seven questions posed under the terms of the review.
In the report Dandara includes an outline feasibility study that concludes that the project could lead to a dramatic financial loss, with the build cost said to outstrip the net saleable value of the whole project.
At present the JDC is using a phased approach to the building project and has pledged not to begin building until a sufficient level of pre-let lease agreements have been signed by tenants in order to mitigate risk.
But Dandara’s report, which suggests a potential £74 million loss, said: ‘There is no market demand now or in the foreseeable future which requires the government to become a developer of Grade A office space with the proposed development and thus expose the public good to the immense risk, which is apparent.
Comments have also been lodged by competing developers C Le Masurier Ltd, whose report concludes: ‘The 2008 States of Jersey approved Masterplan will never be delivered because the quantum of development is too large for the local market.’
Full comments can be viewed online on the Corporate Services Scrutiny website.
BATTLE lines have been drawn over the Jersey International Finance Centre for some time. Today, after a brief lull in hostilities, a shot has been fired which will further ignite tensions between the Corporate Services Scrutiny Panel, environmental campaigners and a group of property professionals on one side and the Jersey Development Company and ministers on the other.
Dandara say the project could cost taxpayers £74 million. They may be competitors, but their warning should not be kicked into touch for that reason.
Managing director Martin Clancy has years of experience in Jersey and knows the local market. When his team builds an office block, they know exactly how much every inch of it will cost and will build it to a specification which balances profit with client requirements.
As investors in this project, taxpayers are being asked to make a leap of faith and trust that a States quango can deliver a massive development project on budget. Experience of public projects, dogged by fall-outs with contractors, sluggish decision-making and an appetite for the grandiose, does not inspire confidence.
The JDC have a clear and unequivocal remit from the States to develop. They must be scrutinised every step of the way to make sure the project returns a profit.
Transparency and accountability are crucial.
