To consider a verbal report from the Director (Nick Edwards) on the Alpamare Waterpark scheme and risk assurance.
The Director, Nick Edwards, gave a verbal update concerning the aims, plans, works and progress of the Sands Development which included the Water Park. This was to provide assurance that the Council continued to ensure that the developer would deliver the original aims and that effective risk assurance monitoring was in place to manage any issues. He added that he was happy to speak to any members direct who were interested.
Members were informed that a member of the public had submitted two questions, originally to the Overview and Scrutiny Board, but in view of meeting timings, the Audit Committee was in a better position to receive these questions and update on all issues. This was acceptable to the resident who was present.
The questions submitted were:
a) Following the news of a winding up petition being filed against Alpamare UK Limited would the Overview and Scrutiny (O&S) Board be investigating the implications for the repayment of the £9million publicly funded loan to Benchmark Leisure?
b) Despite featuring on Alpamare's website and publicity map of the waterpark since July 2016, the wellness spa has still not been completed and opened. There have been a series of delays to Benchmark Leisure's timetable for the North Bay multiplex cinema, restaurants, apartments complex (originally scheduled for autumn 2018, then Easter 2019, now spring 2020). The latest planning application has fewer cinema screens & restaurants but more private apartments. Would the O&S Board be investigating whether, if Benchmark could not complete a small wellness spa in 2.5 years, they could realistically build the cinema, restaurants, apartments complex in one year?
A map of the Sands development was displayed on screen and Nick Edwards referred to a detailed timeline (attached to the minutes) covering the full history of the origins of the development to the present day.
Origins and aims of the Sands development
· Original development agreement with Benchmark Leisure completed in 2002 and provided for the development of an area known as the Sands located at North Bay, Scarborough, update focused on 2009 onwards
· Fifty-five acres of land for development as a major tourist destination for the Yorkshire coast providing a range of tourist attractions, commercial development and accommodation ‘Principal visitor attraction’ component, primarily Open Air Theatre (OAT) and Waterpark
· Parallel complementary development around Peasholm area
· Number of development phases (Cabinet/Council approval for each stage as appropriate)
· Payment to the Council for land value on each completed phase of development
· Land value based on £100k per acre or £1million for first phase
· First phase delivered - development of apartments/flats (some sold/rented), commercial units (some sold/rented)
· Surplus receipts from the first phase (£3.25million) funded OAT development
Change of Benchmark ownership (2011)
· Owner of Benchmark changed, re-focused phased development stages to concentrate on delivery of the Waterpark first then the rest of the development site
Waterpark funding and main loan conditions
· Full Council approved the main loan sum of £9million to Benchmark for the development of the Waterpark.
· Benchmark invested another £5million therefore a total of £14million.
· The Council’s loan was structured so that Benchmark funded the first stages of the build and the Council’s loan was only put in to fund the last stages.
· Loan to Benchmark was on commercial terms to comply with state aid rules. Council retained main land freehold, with 35 year land lease to Benchmark who in turn granted a lease to the operator Alpamare.
· Benchmark had the option to ‘buy’ a 150 year lease of the site subject to repayment of the loan.
· Due diligence undertaken as part of the loan.
· Benchmark took the risk of any development cost overruns above the projected £14million.
· Quarterly repayments of the loan from Benchmark to the Council through rental payments under the 35 year lease.
· Benchmark was not permitted to take any profit out of the Sands development until the loan was fully repaid.
· Loan structured so it would be fully paid back within 30 years
Waterpark opened (2016)
· Waterpark opened in July/August 2016.
· Other progress on the Sands has included delivery of Marston’s pub on the site adjoining Burniston Road car park.
Alpamare financial difficulties (2018/2019)
· In late 2018, Alpamare experienced financial difficulties and its main creditor, British Gas, filed legal proceedings.
· Understood that some of utility issues can be attributed to incorrect tariff (residential instead of commercial).
· Benchmark stepped in to ensure Water Park continued to operate.
· Alpamare petitioned for, & secured, Company Voluntary Agreement (CVA)
The termination of the Alpamare sub lease triggered the requirement for Benchmark to pay the sub lease guarantee payment for which the Council had issued a demand.
Assurances / next steps (2019)
· Lessons learnt from CVA:
o Alpamare revised Waterpark opening hours, e.g. reduced times in winter to better reflect demand and manage costs, looking at range of (discount) packages for users / residents.
o Better management of energy costs.
· Hotel development next to the Water Park is the next phase of development.
Luxury spa is due to open in the very near future and prior to the grant of the lease of the hotel the spa must be finished and open to the public
· Other legal requirements prior to the grant of the lease of the hotel phase include ensuring all other payments due and owing by Benchmark to the Council are up to date such as rent/loan payments and sub lease guarantee payment.
· Regular meetings to be maintained with Benchmark to assure progress including regular loan repayments. Benchmark had experienced difficulties with the cinema phase and had revisited its plans for this phase which had included re-submission of planning.
Members commented that the speed of development was slow and it was important to maintain robust assurances should there be default by Benchmark. They were advised that there were provisions in the legal agreements to allow the Council to take more direct action if required including potentially taking action to forfeit the Waterpark lease should Benchmark default on its terms.
Members enquired about the car parking income from Northstead and were informed that as part of the Water Park loan approval the Council had agreed to accept lower loan repayments so that it could retain the ownership of and income from Northstead car parks, i.e. safeguard that income.
Members queried whether the Council, as a creditor (in terms of business rate returns), would only be getting the agreed 16/17pence per pound owed as part of Alpamare’s CVA. This was confirmed, i.e. the balance would be ‘written-off’.
Some concerns were expressed that the £9million loan was a significant liability and full information needed to be available to residents as tax-payers.
Nick Edwards re-iterated that the Council had carried out due diligence and had put in place ‘checks and balances’ as far as possible to protect the Council’s position. The worse-case scenario of Benchmark defaulting on the loan would result in the Council having to take action under the terms of the agreement with Benchmark with a view to taking back ownership of the Waterpark as well as terminating any rights to the remaining parts of the Sands Development site.
Nick Edwards reported that the current agreement with Benchmark ran to the end of December 2020 so members could review options before then.
Resolved - that further verbal updates on the Sands would be presented to the Audit Committee.