Decision Maker:

Outcome: Recommendations Approved

Is Key Decision?: No

Is Callable In?: No

Date of Decision: September 30, 2024

Purpose:

Content: RESOLVED:   Cabinet:   1.  Approved that the Kings Hall Leisure Centre (KHLC) refurbishment project can proceed to submit the necessary planning application and Listed Building consents required to progress to the next stage of the project.   2.  Delegated to the Interim Group Director, Finance to undertake such necessary steps to obtain planning consent, including the entering into of all necessary legal arrangements.   3.  Authorised the Acting Director of Legal, Democratic and Electoral Services to prepare, agree, settle and sign legal documentation to effect proposals contained in this report and to enter into any other ancillary legal documents as required.   4.  Approved capital costs for the project of up to £71.442m, and note the funding streams and revenue impact associated with this.   REASONS FOR DECISION   Need - Essential Works. In August 2020, ABA prepared a report for Hackney Council summarising the condition of the existing KHLC. It identified the extent and type of repairs and a timeframe for when these would be needed. In July 2021, the Council requested ABA to revisit and resurvey the areas previously highlighted for repair within 12 months and to provide recommendations on whether the timeframes for repairs could be extended by another 12 months. An addendum note was prepared by ABA which summarised the holding repairs which would be required in some areas in order to extend the timeframes and to note that as the condition of some areas remained unchanged since the last survey, it was reasonable to conclude that these parts of the building would perform satisfactorily for another 12 months before undertaking the planned repairs. This approach to monitor structural repairs has been continued on a bi-monthly basis since that addendum report. Initially, with Frankhams providing the monitoring of the basement area; structural monitoring is now consolidated under one consultant - ABA.   The latest monitoring visit was carried out on 3 September 2024 (ground floor slab soffit and above ground floor structural monitoring) and ABA have been commissioned to design and manage repairs identified in the inspection reports to the Sports Hall stores (pitched and flat roofs) and several back- of-house roofs. GLL also continues to undertake remedial works around the building that fall within their remit e.g. remedial works to the Group Cycle Studio.   In addition to the (now monthly) monitoring visits, protocols are in place such that any significant change in the condition of the structure as noted by the operator or the Council are alerted to and discussed with ABA straight away.   Scope: The recommended option is to carry out a major refurbishment and provide new facilities, including a new training pool, compliant 2-court sports hall, additional Health & Fitness facilities, and a new level entrance on Clapton Square.   This design option delivers the essential works which are required in order to address the end of life condition issues in the existing building and also refreshes the facility mix in line with current operational demand and performance standards.   The project has had to continually balance the competing demands of operational considerations, project cost, and heritage & planning requirements in order to present this recommended option. These key drivers are considered below.   Operational Considerations: The recommended option: 1.  maximises the opportunity to address the current water deficit in the borough, by delivering much needed training pool facilities. This will meet the needs not just of schools, but also adult learners from a wide range of backgrounds and needs. A key element of a modern training pool is the provision of a moveable floor, which varies the depth of the pool and enables flexible programming. The existing pool is not able to be adapted to include a moveable floor because this would require the breaking out of the existing intact historic pool tank.   2.  provides additional Health & Fitness facilities (180 stations, an increase of 80 stations from the existing provision, including a separate programmable space to replace the existing 19 station programmable gym).   3.  provides 2 large, flexible studio facilities, one of which will be an upgraded group cycle studio.   4.  replaces the current non-compliant sports hall with a new compliant 2-court sports hall, with appropriate run off areas to accommodate badminton etc.   5.  upgrades failing building fabric, and mechanical equipment & plant (MEP) to deliver modern performance standards, i.e. ensuring the facilities have environmental conditions which are more pleasant and appropriate to the uses they are supporting e.g. good ventilation and air quality, appropriate air and pool temperature.   Project Cost: The projected cost of the recommended option, as set out in paragraph 7 (and detailed further in Exempt Appendix 1), is £71.442m. This target cost is estimated to be £15m more than the Do Minimum option, and is at a greater level of due diligence as a design. Given the current condition of the building, and the need to invest at least £56.445m in order to keep the asset operational and avoid its being mothballed, the incremental increase to modernise the building in line with current day needs is compelling and would offer the best opportunity to maintain a viable facility in the medium to long term future.   In addition, as set out later in the report, investment in the current facility is projected to increase the net income which the facility will generate, through additional footfall and facilities. Future income is prudently modelled to increase by £272k per annum compared with existing levels. Further consideration on the impact of this income is set out in paragraph 7.    Heritage and Planning Requirements: The Council has an obligation to protect the facility, as a Grade II Listed Building. This presents a challenge, given the use specific nature of the spaces within the building, e.g. the original three large voids which housed the three pool halls. As a building which is best suited to wet leisure uses, the proposal to reinstate the pool previously designated as the ‘ladies pool’ (currently the sports hall), balances both the operational demand with the protection of the building’s heritage. Whilst subdivision of these pool hall spaces has been considered, to provide greater flexibility of use, this has not been supported from a conservation perspective by the Local Planning Authority (LPA) or Historic England.   Planning requirements to upgrade the building fabric within an historic building are bespoke, yet the drive to enhance the environmental conditions, operational performance, and enjoyment of the spaces all pulls towards a fundamental upgrade of the building’s failing fabric and MEP. This has presented an opportunity to secure additional funding through the Government’s Public Sector Decarbonisation Grant (PSDS) to secure £3.287m of grant funding (matched by £0.7m from within the project) to ensure that the building can move from gas boilers to Air Source Heat Pumps (ASHP) - saving 495 tCO2e per annum.   The building will also include the flexibility to connect to a District Heat Network in the future, probably as part of any future Hackney Central Heat Network. The option to connect to the heat network will provide a useful plant replacement strategy when the proposed ASHP plant reaches its end of life.   The social benefits and viability of the business model have also been considered: 1.  Social Value. As part of the cross borough GLL contract monitoring, social value calculations are presented. For the period April 2023 to March 2024, the total social value attributed to Kings Hall was £2.125m per annum across 17,514 participants.   2.  Should the construction procurement move to a main contract award, the Pre Construction Services Agreement contractor has committed to the delivery of social value outcomes equating to £13.7m. These are calculated using a Construction Industry Training Board (CITB) compliant method and include the delivery of 30 apprentices, and a guaranteed commitment to 30% local labour and local spend.   3.  Viability: In order to assess the business viability of the proposals, a 10-year revenue model has been developed. This theoretical model looks at the impact of the facility upgrade on the likely performance of the individual Leisure Centre. In reality, these figures don’t stand alone, as they are part of a broader borough wide Leisure Management Contract with GLL; however, these assumptions show the relative benefit (against the current baseline) of upgrading the facilities.   4.  Income has been informed by the current programme of usage and prices at the existing Centre, to ensure a local perspective is considered.   5.  Based on 2022/23 figures, there was a Health and Fitness membership of 3,913 and an annual visitor throughput of circa 322,000. A Latent Demand report produced by The Leisure Database Company for the KHLC catchment area, projects that the catchment area could generate 4,524 Health and Fitness memberships (circa 600 above the current level). This was used to inform the target membership level, and was uplifted by 40% on the basis that such forecasts tend to be conservative and reality outperforms these forecasts by circa 40%.   6.  Swimming income has been revised to reflect the addition of an additional training pool and typical income per court for the new 2 court sports hall. This revenue model also factors in the two multipurpose activity studios, consultation rooms, sauna and steam facilities and vending areas.   7.  The standalone net revenue improvement was assessed at an increase of just under 200%. The main area for potential improvement in revenue performance will be the cost of utilities. Currently, the forecasts are circa 300% higher than historic utility costs per m2. The actual cost, in operation, will become clearer as the design and specification is developed further and could lead to a significant reduction in these costs, assuming that utilities costs reduce from the recent high levels, back towards historic levels.   8.  In order to understand the potential impact that the investment in KHLC would have on the overall performance of the Leisure Management Contract and potential revenue to the Council, Max Associates have carried out a desktop exercise to project the potential income which could be generated from a new contract, once the existing contract with GLL expires in March 2029.   9.  The tendering of a new contract would take into account the investment which the Council has put into the leisure estate since the extension of the existing contract with GLL. The re-tendering of this contract also enables the Council to consider different commercial structures and operating models, which could optimise the income delivered from the Contract.   10.The Max Associates modelling suggests that, even if prudent assumptions are made in relation to future income and expenditure, then a future contract could contribute to the Minimum Revenue Provision (MRP) and Interest payments required to fund the KHLC refurbishment scheme. This is further considered in the Financial Implications.   DETAILS OF ALTERNATIVE OPTIONS CONSIDERED AND REJECTED   This report will now go on to consider why the alternates, which have been considered to the recommended option, have been rejected. Whilst not comparing like for like, these options have been assessed against the same categories, to allow a thorough comparison to be made.   Discounted Options are as follows: 1.  Do Nothing (Mothball) - Close KHLC, mothballing it safely, accepting that the building is at the end of its life, cannot continue safely as a patch and mend, and is not marketable due to its condition and existing fabric constraints.   2.  Do Minimum (Refurbishment) - Carry out a major refurbishment, enabling the building, and its current facility mix to remain safely open for another 50 years. Provide a new level entrance on Clapton Square.   Do Nothing (Mothball): Assumptions and Scope. As set out earlier, the facility is not able to remain open on the basis of a patch and mend / temporary works approach. It thus follows that if a decision is made not to progress with either of the refurbishment options presented in this report, then the facility would need to be closed to minimise additional patch and mend spend, and increased risk of building fabric failure. The timing of such a closure would require further discussion and due diligence should this option be subsequently progressed. Assumptions relating to this option are further expanded as follows:   1.  The building has no marketable value: Following discussions with two local Sales Agents, the informal feedback which was given was that the property was unlikely to be of market interest. This was for the following main reasons: ·  The current condition of the building would require any developer to address critical building fabric condition issues, in addition to any use specific refurbishment and redevelopment plans. This baseline ‘burden’ has been estimated by AtkinsRealis as being in the region of £20.2m to £22.3m and includes building fabric repairs, a light touch refurbishment of floors, walls, ceilings (including those required to make good structural repairs) and a light touch service and maintenance of existing mechanical equipment & plant. This would be required before any use specific development and planning requirements. This burden would need to be taken into account in the assessment of any Land Value payment by a potential developer. ·  The restrictions placed on the use of the asset, from a Listed Building and planning perspective, e.g. retention of historic building layout & facades, maintenance of the historic pool hall voids (without subdivision), retention of existing roof lanterns etc. This would significantly limit the remodelling of the spaces for alternate uses, and points towards the building’s existing use being the most suitable. ·  The current cost of capital, and ·  The lack of a viable development model in light of the above.   2.  CBRE was commissioned to provide a second opinion and test the hypothesis that there is currently no market to dispose of the asset for development. This focused on its most likely use - within the leisure and sports sector.   3.  Following a desktop analysis of nine potential leisure/sports uses against key factors impacting marketability (local demand, site fit, development accretive, site price), their report concludes that there does not appear to be an obvious choice of leisure/sports use that will suit the constraints, and produce a price that will exceed the baseline ‘burden’ / capital expenditure costs which are required to address the asset’s current condition.   4.  A red/amber/green risk status was assigned against each of the four key factors in each of the nine uses. Each use considered contained at least one red traffic light, and a red rating in any of the four assessment categories makes it difficult to justify the viability of the use.   5.  The largest issue was the ability to obtain a site price above the baseline costs required to address existing condition issues; notwithstanding that this baseline cost is a low estimate of basic need - and would require additional refurbishment costs to upgrade the building for its intended use (as is assessed in the ‘Do Minimum - refurbishment’ option in this report for its retention as a Local Authority leisure centre).   6.  In addition, it was assessed that the majority of leisure sectors are not development accretive, i.e. they do not tend to increase the company’s earnings per share (EPS).   7.  CBRE also restated the limited marketability of the property for traditional use class development, as previously fed back from similar enquiries with other brokers.   8.  Decommissioning: The facility would need to be decommissioned appropriately, to ensure that the building is left in a safe condition, and is continued to be monitored. As such, the following headline actions would need to be carried out: 1)  Decommissioning of the facility, retaining any utilities and MEP which are required for health and safety purposes, e.g. lighting, fire safety, alarms etc., 2)  Draining of the pool tank, which will potentially require temporary works to protect the integrity of the structure once the volume of water has been discharged, 3)  Protection of the public facing facades, which may be at risk of failure, i.e. by the purchase and erection of scaffolding and netting to protect falling masonry from passers by, 4)  Statutory compliance testing on an annual basis relating to any health and safety related requirements, 5)  Continuation of monthly structural surveys and remediation to assess and address any condition issues which present a health and safety risk, including replacement and/or additional structural propping, protection of any failing facade etc, and 6)  A 24/7 site security presence (based on two man security or one dog handler and dog).   9.  Sunk Costs. In this scenario, there would also be circa £3.548m of sunk project costs which would have been spent by the end of September in order to progress the refurbishment project. These have been added into the capital costs associated with this option.   10.Costs   11.Capital Costs: In order to provide an estimate of the capital costs which would be required to mothball KHLC, the Council’s cost consultants (AtkinsRealis) have produced a budget cost plan - this is estimated at total project cost of circa £2.585m as at 11 July 2024. A cost summary is included at Exempt Appendix 1.   12.The average annual spend on KHLC across FY 22/23 and FY 23/24 was £178k of revenue spend and £144k of capital spend. (refer Exempt Appendix 2). It is unlikely that this quantum would reduce in years going forward if the building was mothballed as there would still be an obligation to repair and maintain the building to avoid further degradation and disrepair of the building fabric - particularly as it is a Grade II Listed building. A revenue allowance of £322k has thus been included in the options comparison.   13.In addition to this, there would be a need for 24/7 security costs, estimated at £390k per annum, together with an allowance for utility and annual statutory testing costs. Together, this would lead to a potential annual revenue burden of circa £750k per annum. This does not account for any catastrophic failures relating to the structure, which would need to be addressed to maintain a safe structure and protect the Grade II Listed building’s fabric.   14.Viability: Potential further degradation (as a mothballed asset) makes the building less likely to be viable in the future; with an ever increasing cost to bring the asset back to an operational condition.   15.Strategic Risks: The following strategic risks relate to this option:   ·  The Council has an obligation to maintain and protect the asset. Under Section 48 of the Listed Building Act 1990, the Local Planning Authority (LPA) has the ability to serve a Repairs Notice on the owner of a Listed Building specifying those works it considers reasonably necessary for the proper preservation of the building. Section 54 powers also enable the LPA to execute works which appear to be urgently necessary for the preservation of a Listed Building in their area. ·  Historic England ‘At Risk’ Register. A preliminary visit has been held by Historic England, to consider whether the KHLC should be added to the national ‘At Risk’ register. This list provides an annual snapshot of the health of designated assets and to assess priorities for action and funding decisions. To date, the facility has not been added to this list, but should refurbishment plans not proceed and the building continue to deteriorate, then it is likely that the asset will be added. ·  Reputational Risk. The risk of not progressing with a manifesto commitment and/or the abandonment/further degradation of a much loved community asset. ·  Commercial Risk. Given that the refurbishment of KHLC was anticipated within the renegotiated GLL contract, should this refurbishment not occur and/or the facility was closed, this may result in commercial implications for the Council.   Do Minimum (Refurbishment). This major refurbishment option has the following assumptions and considerations:   1.  Assumptions and Scope: This is based on the Do Minimum (Refurbishment) option, and has the following headline scope: ·  Major refurbishment and renewal of the current facilities, enabling the life of the facility to be extended for a further 50 years, ·  Upgrade of the building fabric in order to enable the building to perform in line with modern standards and Building Control requirements (as far as possible within the context of an Historic building), ·  The addition of a new level entrance to Clapton Square, and ·  Facility mix and leisure facility offer remains as currently provided.   2.  Operational Demand:   3.  Cost: As at July 2024, the current day budget estimate provided by AtkinsRealis is £56.445m (please refer to the cost summary at Exempt Appendix 1). It is of note that this cost estimate has not undergone the elemental cost analysis which the recommended option enjoys, and so there is a greater degree of risk attached to this estimate. In order to provide a like for like cost estimate, the design would need to re-commence at Royal Institute of British Architects (RIBA) Plan of Works Stage 2 and work through the detail of the option, with the contractor, and the LPA.   4.  Long Term Viability: There are a number of viability considerations relating to this option: ·  Given there would be no upgrade to the facilities e.g. to include training pool facilities and a compliant sports hall, the operational viability of the facility in the long term is compromised and, despite significant capital investment, the facility would be suboptimal. This may limit its long term future, failing to meet the demand and losing dry side customers to more modern public and private facilities; and ·  Such a refurbishment, whilst prolonging the life of the building, could be considered short term, as it fails to address the evolution of the asset to ensure its long term viability.   5.  Strategic Risk: One of the key strategic risks, that of the facilities ongoing operational viability, is set out above. In addition, the following risks are associated with this option: ·  Planning/Listed Building Consent Risk: Given that this option focuses on the upgrade and refurbishment of key elements, such as structure and MEP, this will require significant interventions which will need to be sensitive to the existing historic fabric and finishes. Agreement will need to be reached with the LPA and Historic England in respect of how far the refurbishment goes, and consequential upgrade of the building’s performance / reinstatement of historic fabric. Having agreed the principles of the recommended option, this would open up a new pre-application discussion, leading to programme delay and heightened planning and Listed Building consent risk. As stated above, the design - currently ready to commence RIBA Plan of Work Stage 4, would need to revert back to the beginning of Stage 2 (which the project commenced in January 2023). This presents a cost risk; both in terms of programme elongation and delivering within the existing cost assumptions. ·  Value for Money: Given the historic considerations above, and a likely pressure from stakeholders to challenge how much is done as part of any refurbishment, this option is likely to offer less value for money than the recommended option; where elements of new build offer a more efficient and defined delivery solution.