Leaked documents have revealed that Scarborough Council is looking to borrow £22 million for its plan to build 200 student flats and a public square in the town centre.
The borrowing will almost double the amount of debt the borough authority has, with the council hoping to make a net return of £970,000 after 10 years, the proposals show.
The plans were approved during an extraordinary meeting of the council on Friday last week. The former Argos building in Newborough will be purchased by the council, then demolished to create accommodation for university students and trainee nurses and doctors in partnership with the York Teaching Hospital NHS Foundation Trust.
Wrenbridge Land Ltd will be the council’s partner in the scheme and is budgeted to make a profit of more than £2.5 million, the documents reveal.
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The financial details were not made available to the public at the time but have now been leaked online. Councillors were given access to the sums before the decision was made and the leader of the council has launched an investigation to find the person responsible.
The documents show that the cost of the scheme is estimated at just over £19million, which includes £1 million to purchase the building. To cover fees and possible overruns, the council is estimated to need to borrow £22m to fund the project.
The report prepared for the councillors notes that as of March 2019 the council had £25.7m in external long term borrowing, meaning the amount of debt would nearly double when the loan for the Argos project is factored in.
The scheme will create flats for the town’s Coventry University campus, CU Scarborough, and when not in use by students would be rented out over the summer months to increase the council’s income.
As well as the flats, the council is proposing to build commercial retail units on the site.
The council documents add: “The indicative appraisal … assumes that £915k will be generated from the commercial units over the initial 10-year investment period. ln the unlikely event that the units are not let, or market rents are not achieved, this will directly affect the council’s net financial return from the asset.”
The report states that the scheme is not without risk, especially around its deal with Futurelets, the student accommodation provider for CU Scarborough.
It adds: “There is a risk that some of the rental income included within the financial appraisal may not be achieved and that the council may need to identify an alternative use for the building in the unlikely scenario that Futurelets do not renew their lease after the initial lease term.
“On that basis, it is proposed that the residual surplus generated from the asset over the initial 10-year lease term be ring-fenced for further regeneration of the site or as a mitigation against reduced rental income or potential changes in the future use of the building.”