From Paradise To Purgatory: Untangling Claims Birmingham's £1B Regeneration Project Is In Trouble
It is one week since reports first surfaced that Birmingham's £1B Paradise redevelopment was in trouble. In the seven days since uncertainty has reigned.
Local government sources claimed that there was a £100M funding gap and that the city council was being stripped of the public sector element of the partnership with Hermes. The Greater Birmingham and Solihull Local Enterprise Partnership would replace them.
Are the claims of spiralling costs and management issues as serious as they sound, or have wires got badly crossed? Bisnow tries to untangle the threads.
The road to hell is famously paved with good intentions, and last week it began to look like Birmingham's 1.8M SF Paradise office development might be heading down that path.
"EXCLUSIVE: Brum loses control of £1bn project as costs double," claimed the headline in the widely respected Municipal Journal on 11 September 2018. The report went on to suggest that the £88M Birmingham City Council had originally borrowed to support the £1B project was now exhausted and that a further £100M was needed.
A raft of other publications amplified the claims. The Times said: "Britain’s biggest local authority is facing a fresh crisis after the cost of its flagship redevelopment project spiralled" and added that the government was seeking reassurances. The Birmingham Post added that both the council and the Greater Birmingham and Solihull Local Enterprise Partnership confirmed more funding had been sought.
Yet when Bisnow approached the Paradise development partnership, which embraces Hermes and the Canadian Pension Plan Investment Board and their development managers Argent, they insisted they did not recognise much of what has been reported. "The facts reported by other sources are not accurate," their spokesman told Bisnow.
So what do we know? Official paperwork, available on the Greater Birmingham and Solihull Local Enterprise Partnership website, helps frame the problem.
At its 22 November meeting the GBSLEP board will be asked to approve what the official forward plan describes as "the Paradise and EZ Investment Plan."
The GBSLEP programme board meeting on 6 September considered something that matches this description. They considered a confidential report on "the update on the Paradise Enterprise Zone project and consider the change request received relating to the working capital facility." That decodes as a request for money.
A report to the GBSLEP board meeting on 13 September adds a little more information. "The LEP Board took the decision at its July meeting to transfer the EZ programme management responsibility from BCC to the LEP Executive," it said.
Significantly the report went on: "To support this transition of EZ programme management responsibilities to the LEP Executive, there were two initial pieces of work undertaken: project healthcheck; and a programme review. The project healthcheck is being commissioned to independently review the status of all live EZ projects. It will recommend any corrective actions that may be required to assure that projects will deliver the agreed benefits, within the agreed costs and timescales."
That sounds like a clear warning that Enterprise Zone projects may not deliver agreed benefits within agreed costs and timescales. The report concluded by suggesting they will agree changes to "operational processes, stage gateway approach, resourcing requirements and roles and responsibilities."
Bisnow asked GBSLEP and Birmingham City Council to explain what was going on and the answer came in two parts. First, the story is right — more money will be needed. Second, they wanted to bring all their enterprise zone work under one management team.
On the money, a joint statement said: "With regard to the Paradise project, the LEP Board have received a request for further investment in the project. This is currently under consideration and a decision is expected later in the autumn once due diligence has been completed."
Turning to management issues, they pointed to a July report to the GBSLEP board.
"The rationale for bringing the enterprise zone programme management arrangements within the LEP structure were set out in a publicly available Board report in July that is readily accessible on the LEP website," a joint statement said.
The July report pointed out that the Growth Deal, Growing Places and enterprise zone each had their own governance and monitoring arrangements. Consolidating them into a single structure through the Programme Delivery Board serviced by the LEP’s Programme Management Office enables "a more efficient and effective use of monitoring and governance resources,” the report said.
Bisnow approached the private sector team, lead by development managers Argent, but have yet to receive a reply.
Some conclusions are possible. More capital financing is required, and a clearer management structure has been put in place. The clearer management structure may mean asking more questions about the money, as the statement suggests. But a crisis in Paradise? Bisnow has found no evidence to support that idea.