LDA may need rescue deal on £650m loan as plummeting land values hit regeneration
The London Development Agency is in dialogue with the Treasury over re-financing £650m of debt it took on to buy the Olympic park site, after consultants found it was set to make a loss until 2025.
According to sources close to the situation, the LDA is facing a “significant cash-flow problem” over the site, on which it is to oversee the construction of 10,000 homes after the Games.
Repayment of the loan is due to last for 20 years from 2014, but work done for the LDA by consultant Grant Thornton has shown that the revenue that can be generated by the legacy development will not start to match the planned repayments until about 2025.
Money is also needed to pay for continuing maintenance and for adapting the venues after the Games.
However, sources say financial modelling shows that the development will eventually show a profit for the public sector.
The source said: “The model shows a very significant deficit for anything up to 10 years. Ultimately, it is on to make a surplus, but there is a very significant cash flow problem.”
The LDA was planning to pay back the cost of the site by selling off packages to developers after the Games, but the plan has been affected by the huge drop in residential land values.
A source close to the situation said: “We could delay the payback start or lengthen the payback time, but any renegotiation will cost money.”
The news comes as the search began this week for a chair and chief executive of the special purpose vehicle designed to push through the regeneration. Former English Partnerships chair Margaret Ford is being tipped to chair the body, while former Lend Lease Europe chair Nigel Hugill is seen as a possible candidate to be chief executive.
An LDA spokesperson said: "The report shows the Olympic park site to be a good investment and land sales achieving a positive payback in the medium to long term, generating a return for the taxpayer.
"This is the important conclusion of the report as it will come as no surprise to anyone in the building industry that current land values continue to fall and in response we will adjust our financial strategies accordingly. We had always recognised that it will take time before we can begin generating revenue streams to cover operational and running costs."