‘Who rakes in the cash?: Wall of silence from Hackney Council on who profits from secretive Tesco land deal
- Credit: Picture: Polly Hancock
Hackney Council has refused to reveal who will rake in the profits from developing the land it spent £60m of public money buying from Tesco - which this paper can now report came from council coffers instead of the public loan that was supposed to be “at no cost to the taxpayer”.
No public tender was ever held before granting the multi-million pound development deal and 999-year lease for 55 Morning Lane to Hackney Walk Ltd - which was dormant with just £1 in the bank at the time.
A company called Dukeminster Ltd is acting as guarantor and said it is financing the multi-million pound development through its subsidiary NH Finance.
Dukeminster is owned by Liechtenstein-based firm Etablissment Finital, which is in turn owned by two Swiss lawyers as trustees of a family discretionary settlement.
What is not clear is who the beneficiaries of the settlement are.
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The council says the firm passed due diligence and money laundering checks, and that it does know the identity of the beneficial owner - but has refused to tell us, instead directing us to Dukeminster, which is also keeping quiet.
The project could see Tesco demolished to make way for a smaller supermarket and a 19-storey block of 530 flats above retail and workspace.
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This paper is calling on the council to make public who will ultimately take the profits from selling the flats - which could take up to 60 per cent of the development - and to reveal the terms of the deal, which is shrouded in secrecy.
Once complete, the council’s financial gain is just £1m a year, or 5pc of the annual rental income from the retail and workspace if that is higher, while the developer walks away with the other 95pc - equating to about £19m a year in perpetuity.
The council will not say when it expects to break even, which might not be for at least another 15 years - backtracking on its promise in 2017 to reveal how long it would take to make its money back once the contracts were signed.
It says that would now “harm its commercial position going forward”.
The council has also refused to say how much interest, if any, Hackney Walk Ltd will pay on the £60m purchase price.
Until now, the council has always cited the cost of the Morning Lane site as £55m, but our investigation has revealed a further £5m was spent on stamp duty land tax, VAT and fees.
When the deal was signed off in January 2017, the council gave the impression it would finance it with a government loan - but the Gazette has discovered that just five weeks later the council drew on its own cash reserves instead.
Hackney has refused to confirm exactly when that decision was made, but said it was always going to “use the most cost effective route to borrow” - a waiver buried in a 20-page report.
The council has justified entering the deal, citing it as “a rare opportunity to influence the regeneration of one of the most strategically important sites in Hackney Central”.
Philip Glanville, mayor of Hackney, said: “We were not going to stand by and let it fall into the hands of the highest bidder or profit-driven private housing developers.
“It would have been easier not to intervene and simply protest when a development we didn’t like came forward, but we took a tough decision to get involved and safeguard a supermarket local people really value.”
He added: “By intervening ourselves, we’ve also set red lines on the minimum workspace, jobs, opportunities and affordable housing that this development will need to provide - none of which would have been possible had we not purchased this land. We will be fighting for every additional affordable home possible.”
As it stands, the development does not meet the council’s own “affordable” housing target of 50pc, with the signed deal guaranteeing just 20pc “affordable” flats priced at 80pc of market value.
Campaigners from Morning Lane People’s Space have been speaking out about the project since last year over the absence of social housing.
The Gazette has been trying to get to the bottom of why no tender was ever held to get the best return on the deal for the taxpayer.
Initially, the council said it could not hold one because it did not own the land when it entered into the options agreement.
But when this paper asked why it didn’t buy the land first before holding a tender, it said a tender process could have lasted at least a year, during which time no income would have been paid on the capital, which would not have been in line with the “at no cost to the council” approach stipulated.
Steve Goodrich, senior research officer at independent anti-corruption organisation Transparency International, said: “The sale and management of public land should be undertaken with the utmost transparency, so when assets are leased or sold without a competitive process it raises the question, why?
“Given the amounts of money that can be made through the development of real estate, securing value for money and community gain should be of utmost concern.
“Councils should be open about how they are managing public land and who they are entering into business with.”
When the deal was signed off, no mention was made of Dukeminster - yet last October Dukeminster was named as the applicant for the development on a pre-planning application.
The Gazette was later told this had been a planning officer’s “mistake”, and maintained the applicant is Hackney Walk Ltd.
But no one flagged up “the mistake” at the pre-planning application meeting where Dukeminster’s representatives answered questions about their plans.
Hackney Walk Ltd has just over a year left to get a planning proposal signed off, or the option agreement will expire.
The deal is the second which has seen Jack Basrawy’s family businesses benefit from public money with no tender process.
The first was the failed fashion district, also named Hackney Walk, next door.
Mr Basrawy managed the luxury fashion mall in Network Rail’s railway arches, which were revamped using a £1.5m slice of City Hall’s riot regeneration fund, and £135,000 of council cash.
This was matched with £4m from the publicly-owned Network Rail, and £12.5m from the Hackney Arches Construction Company - co-owned at the time by Mr Basrawy, Ruth Basrawy, and Manhattan Loft Company property magnate Harry Handelsman.
Chatham Works Ltd, owned by Ruth and David Basrawy, then applied to the council with Manhattan Loft for permission to change the planning use of the arches to retail.
The fashion district was supposed to create jobs for local people, but neither the council nor City Hall ever recorded how many, and last year the Gazette reported that nine out of the 12 arches were sitting empty, along with the building opposite the Nike store.
A spokesperson for Dukeminster’s PR firm, London Communications, spoke on behalf of Mr Basrawy to tell the Gazette that as of July 2017, when he ceased being involved in the fashion district Hackney Walk, 11 out of the 12 arches were occupied as well as one of the infill buildings, with interest in the other.
They added: “The refurbishments to the arches were made by Network Rail. Network Rail received the grant for the arch refurbishment and no government funding was ever given to Manhattan Loft or Chatham Works.
“Following this Hackney Council sought to bring forward the fashion hub concept, and consequently a scheme was designed by David Adjaye and Pringle Richards Sharratt Architects for Network Rail and Manhattan Loft Corporation. Chatham Works Ltd were also involved at this point, working alongside Network Rail and Manhattan Loft Corporation.
“The Tesco site has a completely different project team. At the pre-application meeting members of the Hackney Walk Ltd project team, alongside consultants working on the project, presented the proposals for the site.”