Financial and legal aspects of the contract
5.1 Due Diligence (DD) /Stress Test of the Risk and Project
We understand that ACC has entered into a "sale and lease back" contract with Muse for the entire Marischal Square development (the "Project"). This will expose the Council and the Council Tax ratepayers of Aberdeen to an unnecessary degree of risk, especially in the current market affected as it is by the depressed oil price and 280,000 square foot of city centre office space due to come on the market at the same as Marischal Square.
Please detail the DD and 'stress tests' conducted for various levels of occupancy of the Project.
In order to assist the applicant to understand the process and outcome some narrative is helpful:-
At a meeting of the full Council on 6 October 2011 a Report was presented on relation to the future of St Nicholas House.
The site was taken to the market in April 2012 with a closing date set for 3 July 2012.
The recommendation of the Report was subject to an amendment with the Committee Resolving: That the Council:
(a) instruct the Head of Asset Management and Operations to advise the top four scoring bidders that they have been selected as preferred bidders to move forward to the next stage; and
(b) agree to establish a Working Group of five members, comprising one representative from each Group, to receive presentations from short-listed bidders, and that officers report back to the Finance and Resources Committee. The Working Group was subsequently established and their role in the process agreed by the Working Group and subsequently by the Finance and Resources Committee.
Following the decision the preferred bidders were notified and provided with 'Guidance for the benefit of preferred bidders Stage 2'. A closing date was set for 9 April 2013 and presented to council on 1st May 2013.
The preferred bid as approved at Council was with Muse Developments Limited and AVIVA Investors Realm Commercial Assets LP (Aviva). The overall agreement is made up of a number of parts and separate contracts between the parties. This is a commercial agreement between the Council and other parties and the full details of the scheme are commercially sensitive. However, the general basis of the agreement can be described as follows:-
- ACC sold the site (excluding Provost Skene's House) to Aviva (December 2014).The council has received £1million up front with the balance of £9million payable at completion in two years time
- ACC entered into a lease with Aviva for the site, and will pay a rental from the completion of the development for a 35 year period
- The Council's annual rental payment realises a capital sum to undertake the development
- Muse is obliged to build the scheme for Aviva to create a range of development space and in turn an income stream to the council
- Muse are contracted to identify and tie in a Hotel operator. This is in place with the Hotel element trading as a Marriot Residence Inn
- Muse are contracted to let the office, restaurant and additional space within the development on behalf of the Council
- The capital sum above pays for the construction costs to build the development, the purchase price paid for the land, a profit account to be shared between the three parties, and a contingency fund to cover vacant periods and other costs. Further monies are set-aside for upgrading works to Provost Skene's House and public realm works within and outwith the scheme
- After the 35 year lease period the Council can choose to buy the development in its entirety (including the land) for £1
- The council is liable for the annual rental and will carry the risk should the hotel and development not realise the income projected. The projected income on a fully let scheme is however significantly above the rental payment
5.2 Who conducted this DD and when (with reference to consideration of the proposal/the planning process/execution of the contract)?
A full review of all offers, including the risk associated with them, was conducted by officers and the Council's marketing agents Ryden LLP at the time the bids were submitted. Brodies LLP provided legal advice and CBRE Hotels provided professional advice in relation to the hotel element.