Appendix C: Head Office relocation business plan
12 December 2000
Ms Kerry Walton
Manager - Group Relationships
Unity Trust Bank plc
150 Minories
London
EC3N 1LS
Dear Kerry
I am writing following our meeting on Friday 8 December to outline in detail the plans that I am currently considering in respect of the union's head office, which will need to be considered and agreed by BECTU's National Executive Committee on the 17 December if we are to proceed.
The aim of the project is to improve the union's asset base and to achieve a refurbishment of our current offices at 111 Wardour Street.
In order to do this we would purchase 373-377 Clapham Road and use that building as the union's head office. We would refurbish the union's existing office at 111 Wardour Street and lease out that building at a commercial rate.
As far as BECTU is concerned, this must be a self-financing operation with the income generated from 111 Wardour Street covering the loan necessary to purchase 373-377 Clapham Road and to refurbish 111 Wardour Street.
In order to achieve this BECTU will require a loan of £3million to cover the cost of purchasing 373-377 Clapham Road and the costs of refurbishing our existing offices at 111 Wardour Street and associated costs. We would require a loan that was repayable over 20 years with an interest-only payment in the first year.
We would need the Bank to commit to the loan in principle prior to making a contractual arrangement to purchase 373-377 Clapham Road, but it would not be our intention to draw down the loan until we completed the purchase of 373-377 Clapham Road some six months into the project. We would therefore not expect to incur the facilities fee or any of the other fees associated with the loan until we started to draw the loan down.
BECTU would offer the deeds of 111 Wardour Street and 373-377 Clapham Road as security for the loan. 111 Wardour Street is valued at £4.25million after refurbishment and 373-377 Clapham Road is currently on sale for £2.25million.
The time-scale of this project, subject to BECTU's National Executive Committee agreeing to proceed when it meets on the 17 December, is as follows:
BECTU would want to make a formal offer for 373-377 Clapham Road immediately following the meeting of the union's NEC on the 17 December, and if agreement can be reached on the terms of the purchase, I would expect to have to offer a 5% deposit of the agreed purchase price of 373-377 Clapham Road. The current owner/occupiers have indicated that they do not want to vacate the premises for another six months. During this six months period I would expect our agents, Hutchinson Morrison Childs, to carry out the following programme of work:
- design briefing;
- preparation of design and specification and obtaining planning consent;
- preparing tender documents and seeking tenders from contractors;
- tendering report; appointment of contractor; finalising terms of building contract.
At the end of this 26 week period I would expect to complete the purchase of 373-377 Clapham Road and at that point to pay the outstanding balance.
It is at this point that we would start to draw down the loan arranged with the Bank.
There would then be a 26 week period during which the refurbishment of 111 Wardour Street would be completed
Although the demand for office and retail space in Wardour Street is currently very high, I believe that it would be prudent to allow, so far as financial planning is concerned, a further 26 weeks to find suitable tenants for 111 Wardour Street.
The total costs of the proposed project fall into four different areas:
- the cost of purchasing 373-377 Clapham Road;
- the cost of refurbishing 111 Wardour Street;
- agent and associated fees, and the cost of the loan
373-377 Clapham Road
The cost of purchasing 373-377 Clapham Road would be £2.25m
plus stamp duty at 4% amounting to £90,000
a survey of the property would cost £2,000 + £350 VAT
I would expect the legal fees associated with the
purchase to amount to £15,000 + £2,650 VAT
making a total of £2,360,000
111 Wardour Street
The cost of refurbishing 111 Wardour Street would be £530,000 + £92,750 VAT
payable over the six months of the refurbishment. I would expect that 40% would be payable in the first two months 20% in the second two months, and the remaining 40% in the final two months. The legal fees associated with the letting of Wardour Street would amount to £20,000 + £3,500 VAT.
The total cost of refurbishment therefore comes to £646,250
Agency and associated fees
I would expect the agency and associated fees in respect of the purchase of 373-377 Clapham Road and the refurbishment of 111 Wardour Street to be as follows:
1% of the purchasing price of 373-377 Clapham Road amounting to £22,500 + £3,938 VAT
I would expect this to be payable when the purchase of 373-377 Clapham Road was completed.
A project management fee of 8% of the refurbishment costs of 111 Wardour Street amounting to £42,400 + £7,420 VAT
I would expect this to be paid in monthly instalments over the period of the refurbishment.
Total costs: £76,258
Loan
In respect of the fees associated with the loan I would anticipate an arrangement fee of 1% of the £3million, amounting to £30,000 + £5,250 VAT
Legal fees to arrange the legal charge that the Bank would require over both buildings amounting to £3,000 + £525 VAT
A valuation of both buildings amounting to £5,000 + £875 VAT
A project management fee of £1,000 + £175
I would also anticipate that there would be a fee of �% for the first two years of the loan to cover the management fees imposed by the Bank.
The total fees therefore associated with the loan come to £45,825
In summary I believe that the cost of the project would be:
- the purchase of 373-377 Clapham Road and the associated fees £2,360,000
- the refurbishment of 111 Wardour Street £646,000
- agency and associated fees £76,250
- fees associated with the loan £45,825
There would be an additional agency fee of 10% of the rental income during the first year of rent. It is estimated that the rental income would be £342,000 per year. 10% therefore would amount to £34,200. I anticipate that this would be deducted over the first year of rental.
I understand that the Bank would charge an additional �% for the management fees associated with the loan for the first two years of the loan. I have not included these in the upfront fees illustrated above but have assumed that they could be paid out of the income in the first two years.
It is anticipated that the rental income from 111 Wardour Street would produce a total of £342,000 per annum. The detail behind this has been set out in the letter from Peter Hutchinson to myself dated 1 December 2000. You already have a copy of this letter.
Attached to this letter is the detailed financial information you requested when we met last Friday:
- the income and expenditure forecast for 2001
- a flow chart illustrating the process of drawing the loan down
- a cash flow chart which presents the income and expenditure account into the 18 month period and deals with the draw down of the loan
I would be extremely grateful if you could let me have whatever information you can by midday on Friday 15 December.
Yours sincerely
ROGER BOLTON
General Secretary