Monday, 15 January 2018

Selling off the Family Silver?

Selling off the Family Silver

When the States of Jersey Development Company took over the Weighbridge Square, they took it over on a 150 year leasehold from the Public of Jersey from 15th February 2008.

This is, therefore, land owned by the public, not by the SOJDC.

Now things are to change, as the JEP reports:

“The land adjacent to the hotel is currently let on a long lease to the hotel to provide alfresco dining facilities, an arrangement that will continue. However, after being put up for sale by the SoJDC the land is to be sold for £975,000, with the money from the sale being used to help pay for the company’s development projects.”

Bailiwick Express reports:

“In a separate transaction, the JDC also decided to get rid of 10 parking spaces at Castle Quay, which were bought by their predecessor as part of an agreement with Dandara, who built the development. Those spaces are currently rented to Ports of Jersey to be used by marine traders attending Elizabeth Marina. They will be sold for a total of £415,000.”

Lee Henry remarked that:

"We carry out a number of projects and working capital is needed in all projects. Commitment is needed upfront for the schemes we work on and they are funded out of our working capital. The money we will receive from the transactions once they are approved will be recycled back and invested into projects. Once those projects are completed and sold, the pot will be replenished and recycled into other projects. It's a constant flow."

But where in this constant flow is there any flow returning to the States? The Accounts of the SOJDC state:

“100% of profits generated by JDC from the direct development of property will be repatriated to the States Treasury via a dividend, invested in public infrastructure or used as working capital for further developments.”

The Accounts state:

“JDC creates new homes for local residents and new Grade A office space for the island’s premier financial services industry. By investing in direct development, rather than selling land to developers, we ensure that returns to taxpayers are improved

What returns? Given that they received the land for a nominal sum from the States, at least if 25% of any sales were directly returned to the States would at least benefit in the short term.

It is interesting that responsibility for these high profile decisions has been allocated to the Assistant Minister, John Refault, rather than the Treasury Minister, Alan Maclean, who might find this kind of sale inconvenient in an election year.

Moving on to College Gardens, it is stated:

“A construction contract was entered with local contractor ROK Regal in September and the first units will be ready for occupation in April 2018. Phased completions will take place thereafter until final completion in April 2019. 100% of the profit generated from the development will be paid to the States Treasury as a dividend in 2019.”

But later on we read in the accounts, about loans taken out for the development:

“These loans will be repaid in full on the disposal of these completed assets with the profits being either paid out as a dividend or retained by the Company for the delivery of public infrastructure or used as working capital for future development projects”

And in fact this is what we see happening all the time. The last return to the States from the SOJDC  was in 2015. There won’t be another until 2019, subject of course to the proviso that monies may be “retained by the Company for the delivery of public infrastructure or used as working capital for future development projects”:

And as Ben Shenton has noted, the public deserved assurances that the reduced cost of the grounds and building was not creating false profitability for the JDC, which could then be used as a reason to pay staff bonuses.

“Given the level of pre-development expenditure on large real estate projects, the funding requirements for the delivery of public infrastructure in the Esplanade Quarter and the long lead-in times to realising receipts from real estate development, JDC agreed with its Shareholder that there would be no dividend paid in the year (2015: £1million). The next anticipated dividend to be paid by JDC will be in respect of the College Gardens development in 2019.”

Although we have one commitment... at the present. Lee Henry stated in 2017 that their £30 million JCG housing project would return £4 million to the States.

A brilliant return, given that a local developer had previously made an opening offer of £5 million for the site, but that the States refused to enter into talks!

In the meantime, expect little returns on any other developments.

As was stated in a reply by Alan Maclean, Treasury Minister, in 2017:

“SoJDC has publicly reported that profits from the development of the Esplanade Quarter can only be paid out as dividends after all the public infrastructure associated with the development has been delivered. SoJDC has stated that the forecast £50m residual return from the entire Esplanade Quarter development will be available in around 15 to 20 years’ time (on completion of the entire development)”.

I predict that it will be less than that.

But even if it is that, how much would that be worth in real terms? £50m back 20 years ago, in 1998, would have been the equivalent of around £29.9m. The value of money depreciates over time.

When one takes into account the deterioration in the value of money, what seems today like a good deal sounds like a life insurance policy which originally seemed 20 times the annual salary of the payee, and now is barely a quarter.

Someone is profiting from the SoJDC. I'm just not sure it is the public of Jersey.

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