Single Aspect Blog

Transcript of this interview on YouTube between Peter John and ABC

SC: Did Southwark council get a bad deal from Lend Lease, were you hoodwinked?

PJ: No I don’t think so I think we got a good deal at the time if you go back to July 2010 the property market in London had collapsed the government had withdrawn £6bn of affordable housing subsidy so we were negotiating a deal to get affordable housing across a site, Elephant & Castle. Twenty-five percent compared incredibly favorably to other deals being done around London.

SC: So how much will the council end up making from this deal?

PJ: It’s impossible to say but it I’m confident it will be north of a hundred million.

SC: Ok and how will they make that money?

PJ: There’s an overage agreement between the council and Lend Lease so that you know when the costs of development have been returned and a certain amount of level of profit to Lend Lease, the developer that we share the profit on a fifty-fifty basis and I think that that’s a reasonable expectation for the council. I can’t be absolutely precise but that’s what I would expect.

SC: So who decides when you hit that overage point that surplus point?

PJ: It’s set out in the contract the terms for which you know that the costs are recovered by the developer the profit is recovered the permissive profit level is recovered and then we go into kind of shared profit and that’s similar to deals that we’ve done with other developers on land that we’ve owned or had an interest in around Southwark.

SC: So at this point how much is the redevelopment costs of the council and I’m talking about things like relocation costs compensation like how much have you had to outlay?

PJ: I don’t know that off the top of my head I mean I’ve seen figures that we we’ve paid out something like £47m pounds and I’m not in a position to argue against that but a lot of these sums you know come back to us and more than that in due course I mean there have been land payments and estate land payments that come back to us.

But you know I think it’s important to understand Elephant and Castle for us as a council was not about simply profit although we will make a profit for the people of Southwark which we’ll invest back into public services this was about fundamentally changing a part of London which was crying out for change. Zone One central London which had 1200 poor quality council houses and you know whatever anybody says now 20 years ago 10 years ago people did not want to live there.

They were hard to let properties and the right approach was to end you know the days of this sink estate and to build high quality housing and that’s what’s being built now at the Elephant & Castle right now.

SC: Ok so the first phase of the redevelopment Trafalgar Place has been completed and people already moved in and Lend Lease has already profited from this development. Has any share of the profits come back to the council yet?

PJ: I don’t know the answer to that. I don’t know the answer they’ve been staged payments as …

SC: Because I’ve been told you haven’t got any profits back there’s been no share of the profits returned.

PJ: I don’t know Steve I’d have to look into that and come back to you with an answer on that you know the land payments have been made there is various triggers as there is in any big contract of his nature land payments that are triggered once we handover bits of land to Lend Lease so we have certainly been paid for land has been transferred to Lend Lease

SC: Okay I’m talking more about the profits though because there are reports that I’ve seen that say the council won’t see any of the profits till at least 2025 is that right?

PJ: It depends when the project you know reaches profit and reaches kind of the agreed profit lines so you know you could say it won’t be until 2025 it could be 2021 it could be 2019 it depends how quickly the costs are recovered and that slightly depends on where the property market moves during that period.

SC: Yet Lend Lease is already making profits out of it and if that is the case if the profits are delayed by up to 15 years doesn’t that mean you have been hoodwinked?

PJ: Well I don’t know that they are making profits in terms of you know the scheme in general this is a scheme where Lend Lease have to put and have had to put hundreds of millions of pounds into the development before seeing real profit coming out at the end.

You might look at a single plot and say okay you know that the potentially in isolation you know that that property must have returned a profit I’m not sure that’s the case I think that the grand scheme of things the money that Lend Lease have had to invest into the scheme doesn’t necessarily mean they’ve seen a profit.

SC: But in the last financial year they’ve boasted that their profits had gone up and in part they pointed to sales at Elephant and Castle.

PJ: Well that’s across the company as a whole I don’t know whether you know I can’t say that I don’t know Lend Lease’s figures it pointless for me to speculate precisely. What I can tell you is that we did a good deal with Lend Lease back in 2010 what we’re delivering and seeing delivered at the Elephant and Castle is really high quality housing up for the Stirling Prize for goodness sake you know this is good news this is tenure blind housing which I think is a real success story.

SC: Jerry Flynn told me that due to the contract that you signed you may never get any of those promised shares of the profits is that right?

PJ: Well I don’t know how on earth Jerry Flynn can say that you know that. There’s a clear contractual agreement and expectation that profit will be shared once Lend Lease have reached the agreed level of profit they’re allowed to take out of the scheme. In my dealings when I can tell you with Lend Lease they have been utterly frank honest and I’ve never believed that I’m being hoodwinked or being told a lie.

They have reached agreements with me in terms of the rents paid for affordable housing the quantity of affordable housing delivered to that site which suggests to me the people I’m dealing with Lend Lease are utterly honest.

SC: Isn’t it the case though under section 3.7 of the regeneration agreement that says that if Lend Lease disposes of any interest in the land to a wholly owned group company it disallows any profit sharing with the council?

PJ: Well you have read the agreement more recently than I have Steve. I read this in 2010 I go on the basis of advice that I receive advice from them you know legal team and I’ve no reason to doubt the council will not get profit out of this at the end of the day.

Why would tell me why would Lend Lease that wants to do more work in London come into London and deliberately hoodwink a council and then welch on a deal. That is not the kind of company that is serious about staying in London. Now if you’re saying is a fly by night company, it will be here today and gone tomorrow you might well have justification for what you’re putting to me. I don’t see any justification.

SC: Okay but isn’t that what they’ve done they’ve purchased the land and then they sold the finished product to Lend Lease residential companies and therefore under section 3.7 they could avoid any obligation to share profits with the council

PJ: I’m not expecting that, see all I can tell you every element of agreement that we reached with Lend Lease has been honored by them. We’ve seen them payments coming forward to us from One The Elephant which is part of the scheme which will pay for an entirely new leisure centre down at the Elephant and Castle.

You know you can pick agreements like this apart and put individual clauses to me which I’m not going to be able to comment on because I didn’t know you’re gonna go clause by clause through the agreement today. What I can tell you is this is a major regeneration scheme one which is good for London which is good for Southwark and which is going to provide it be providing much needed housing for Londoners.

SC: Ok Jerry Flynn picked out that, that piece of a contract and he published it on his website and he seemed to be saying this is the point where Lend Lease is going to avoid having to share their profits with Southwark Council. Did that section of the contract set off alarm bells for you at the time when you signed it?

PJ: Look I think there are a handful of people in Soutwark, in London who were opposed to seeing massive regeneration schemes happen Jerry Flynn is one of them and you know you can paw through any agreement, any contract your mobile phone operator your power provider and find clauses which you say my God if they invoke that clause I’ll be really up the creek without a paddle but it doesn’t happen. It’s not gonna happen in this situation.

SC: What if Lend Lease does to that what would you do?

PJ: Well, if they do that we look for whatever remedies we can, I’d be amazed though if that were the case I say I have no basis to believe that that would be the case. This is a company which in dealing with me have operated on the basis of good faith and honesty.

SC: Alright Southwark has set a minimum of thirty five percent of affordable housing stock on new developments why didn’t you get 35% on this deal why let this big Australian developer negotiate you down to twenty-five percent?

PJ: Because at the time that we did the deal in July 2010 the property market in London had collapsed the government had withdrawn £6bn pounds of subsidy from affordable housing which meant that rather than a subsidy of between £120,000 and £150,000 pounds per property for affordable housing you were getting something like £20,000 pounds.

It fundamentally changed the economics of the scheme and so we had to – we could have left it to the planning process and seen what came out in each, at each stage of the planning process but we wanted a guaranteed minimum level of affordable housing and that is what we’ve got twenty-five percent as I say.

Stands pretty well in comparison to other schemes across London which were negotiated at that time, and for a scheme of this duration and of this size I think it was important to have that guaranteed minimum rather than leaving it to what the property market was doing which would have delivered probably less than ten percent affordable housing in the first phase which have been disastrous for the people of Southwark and might well have fallen back again. We’re already seeing property market turning in London again.

SC: But the viability assessment showed Lend Lease would make a profit of around twenty five percent that’s about ten percent higher than normal doesn’t that suggest that they could afford to put more affordable housing in and meet that thirty five percent target?

PJ: Well the profit level which companies get out ranges around about the twenty to twenty-five percent I don’t think that’s particularly unusual figure for this scheme. I don’t think we could because I think if you look at the – what the viability was showing even with that twenty-five percent profit was much less than twenty-five percent affordable housing being delivered across the scheme it was something like fifteen percent sixteen percent it would have delivered so twenty-five percent in that context is good.

SC: Ok a former resident forced to leave the estate spent three years trying to access the the viability assessment that explain why the council accepted that figure at less than thirty five percent and it cost you £50,000 in legal fees to fight that over three years. Why did you find it so hard for so long? Were you embarrassed about that document getting out in public?

PJ: No I wasn’t embarrassed and we weren’t embarrassed. There was an agreement a confidentiality agreement that was in the contractor as to the viability assessment and that was the basis on which the viability assessment was produced in common with every other planning application at that time that Southwark dealt with.

SC: But don’t people in Southwark have a right to know?

PJ: They do they and they do now and we have the most open and transparent process with regard to viability assessments of any council.

SC: Is that open and transparent though not allowing a document to be published for three years and fighting in the courts to suppress it?

PJ: Well we did oppose I say because we had a contractual obligation effectively to say this is information which has been given to us on this basis so

SC: Why sign a contract if you believe in transparency?

PJ: If you gave me a bit of information is I’m giving it to you this information on the basis of confidentiality and expect that confidentiality to be observed it would be I think remiss of me to say I’m going to go ahead and spread that bit of information. That was the basis on which information was exchanged at that time that was not unusual that was the same as is done with many planning applications at that time not just in Southwark but across London every planning application.

We’re moving into an era of greater transparency and that’s what we’re doing and now I’m more than happy to turn that information over and I think its people have now looked through the deal and actually nobody has come back nobody’s come back and said you could deliver 35% affordable housing nobody.

SC: Ok affordable housing means eighty percent of the market rate doesn’t it? Now in reality there’s very few homes in these new developments for working-class people what what used to be 1,200 homes of social housing will in reality be around 80 now when it comes to social rent won’t it?

PJ: There’s going to be well twenty five percent of the housing across the development is affordable housing that falls into a number of categories, part of it is affordable to buy so shared ownership and half of it is for rent.

The rented housing one and two-bed properties are at fifty percent of market rent and anything above that is at social rents which is about thirty to thirty-five percent of market rent so there are no properties which are being rented at the Elephant & Castle at eighty percent of market rent. Look. The point is nobody wanted to live on the Heygate estate, it was hard to let, it was sink estate housing there is a reason.

SC: A lot of people wanted to come back didn’t they?

PJ: And they can come back and people are coming back and there is a reason that there is a reason why World War Z a zombie movie, was filmed on the Heygate estate, there is a reason why Harry Brown a vigilante movie starring Michael Caine was filmed on the Heygate estate because it was, it’s unpleasant and unwelcoming and didn’t work for the people who lived there. People can come back and they are asked do you want to move back when properties become available and why

SC: For example how many have moved back into the first phase Trafalgar?

PJ: It’s a handful of people have moved back here.

SC: So that is not many is it?

PJ: No but many people are very happy. If you look across. The vision behind the regeneration of the Elephant & Castle was not simply to replace 1200 failing social housing units with 1200 failing social housing units that would be a completely pointless exercise. What we’ve done is built one [pause] or will have built 1750 affordable housing units across a slightly wider area.

A lot of people who lived on the former Heygate estate have moved to those properties which are very close to the Heygate estate and very happy there. Others moved have moved further within the borough but if you were a tenant on the Heygate estate you had the absolute choice of where you moved to and you do have a right to return. Now not everybody’s going to want to come back but those who do can exercise that right and they are.

SC: But many of them can’t afford to move back in and they’ve moved to the fringes of London and many of these people were.

PJ: No, no, no, if you were a tenant there you you stay within Southwark if that’s what you wanted to do.

SC: If they could find a place that they could afford it?

PJ: No, no, no, absolutely not no you moved as a council tenant to another council property. Now there’s a difference with the leaseholders. If you’re a leaseholder, if you exercised your right to buy then it might be that you found that what we paid in terms of compensation wasn’t enough to rehouse you in Southwark and some people did move outside London.

SC: So bearing that in mind can you understand why why people in those working-class communities can feel like they’ve been driven out?

PJ: No because they’ve not been driven out. You know that.

SC: If they were leasing and the compensation is not enough for them to afford to lease another place they are driven out aren’t they?

PJ: Well people who people have moved some people have moved out of London I have to acknowledge that [pause] but you know that that the point is this is about this was about creating a really vibrant and viable mixed tenure community and that is what we’re achieving there and you know I’m really sorry if people had to move away from London if you’re a leaseholder something like a hundred and fifty leaseholders at the Heygate estate and in subsequent regeneration schemes I think we’d made better offers than we did at the Heygate if I’m honest so a lot of people were bought out before we became the administration in 2010 there were only a handful of people left when we became the administration.

So we’ve improved things. I accept that that’s slightly problematic and we learn lessons from it, but was the overall vision right for Southwark right for London, absolutely? I mean one thing to bear in mind over the last six years in Southwark we’ve seen an increase in employment of those aged 16-64 over ten percent over ten percent in contrast to a borough North or the river like Camden one percent increase so we’re getting people into work because we’re seeing investment coming into the borough.

We set up a construction skills centre that Lend Lease are sponsoring down at the Elephant and Castle which will be getting hundreds of local people into work in the booming construction industry in our city now that’s got to be good news. Ultimately that’s got to be good news because without you know if creating work for people means they’re healthier they’re more economically independent you know it’s good news all around for them.

SC: There’s a criticism that you’ve got too close to Lend Lease that you accepted free tickets to the London Olympics opening ceremony that they flew you to the South of France have you got too close to Lend Lease?

PJ: No absolutely not.

SC: So why accept those freebies from them?

PJ: I was offered the opportunity to go to the Olympic opening ceremony and to meet the worldwide board who were going to be there and I did and discussed issues with them about the Elephant & Castle and I think until that point I’m not sure the whole board was convinced the Elephant & Castle should be their number one priority in London so it’s about making the case as well.

In terms of going to the South of France to talk to others about what we’re doing at the Elephant & Castle at a seminar you know I think that was a worthwhile thing as well you know you’re damned if you do damned if you don’t I mean at the same time as I was there I talked to the Mayor of London secured the extension of the Bakerloo Line tube line through Southwark.

SC: You could’ve spoken to the Mayor of London in a coffee shop couldn’t you?

PJ: Well trying to get hold of Boris Johnson to have a meaningful conversation with him at that time was virtually impossible when he wasn’t surrounded by advisors and actually getting his commitment was very worthwhile. So you know I you can you can throw these things ah you know you shouldn’t do this you shouldn’t do that but we’re a borough that is open for business is determined to get the very best quality housing for our residents, determined to get our residents into work and anything that promotes that and promote the interests of the residents I represent I will do.

SC: There are other council former council employees who have gone on to work for Lend Lease you know is there a perception that that’s a problem as well?

PJ: I don’t I don’t think so. I mean you know what you know why why? The perception but reality, no.

SC: Okay I’m happy with that is there any other points you think it’s important to make?

PJ: No I don’t think so I think I’ve made those points. fantastic thank you Steve.

SC: Alright thanks so much for doing that I appreciate it.

PJ: My pleasure.