Content

RESOLVED:
 
Cabinet:
 
1. 
Approved that the Kings Hall Leisure Centre (KHLC)
refurbishment project can proceed to submit the necessary planning
application and Listed Building consents required to progress to
the next stage of the project.
 
2. 
Delegated to the Interim Group Director, Finance to
undertake such necessary steps to obtain planning consent,
including the entering into of all necessary legal
arrangements.
 
3. 
Authorised the Acting Director of Legal, Democratic and
Electoral Services to prepare, agree, settle and sign legal
documentation to effect proposals contained in this report and to
enter into any other ancillary legal documents as required.
 
4. 
Approved capital costs for the project of up to
£71.442m, and note the funding streams and revenue impact
associated with this.
 
REASONS FOR DECISION
 
Need - Essential Works. In August 2020, ABA
prepared a report for Hackney Council summarising the condition of
the existing KHLC. It identified the extent and type of repairs and
a timeframe for when these would be needed. In July 2021, the
Council requested ABA to revisit and resurvey the areas previously
highlighted for repair within 12 months and to provide
recommendations on whether the timeframes for repairs could be
extended by another 12 months. An addendum note was prepared by ABA
which summarised the holding repairs which would be required in
some areas in order to extend the timeframes and to note that as
the condition of some areas remained unchanged since the last
survey, it was reasonable to conclude that these parts of the
building would perform satisfactorily for another 12 months before
undertaking the planned repairs. This approach to monitor
structural repairs has been continued on a bi-monthly basis since
that addendum report. Initially, with Frankhams providing the monitoring of the basement
area; structural monitoring is now consolidated under one
consultant - ABA.
 
The latest monitoring visit was carried out on
3 September 2024 (ground floor slab soffit and above ground floor
structural monitoring) and ABA have been commissioned to design and
manage repairs identified in the inspection reports to the Sports
Hall stores (pitched and flat roofs) and several back- of-house
roofs. GLL also continues to undertake remedial works around the
building that fall within their remit e.g. remedial works to the
Group Cycle Studio.
 
In addition to the (now monthly) monitoring
visits, protocols are in place such that any significant change in
the condition of the structure as noted by the operator or the
Council are alerted to and discussed with ABA straight away.
 
Scope: The recommended option is to carry out
a major refurbishment and provide new facilities, including a new
training pool, compliant 2-court sports hall, additional Health
& Fitness facilities, and a new level entrance on Clapton
Square.
 
This design option delivers the essential
works which are required in order to address the end of life
condition issues in the existing building and also refreshes the
facility mix in line with current operational demand and
performance standards.
 
The project has had to continually balance the
competing demands of operational considerations, project cost, and
heritage & planning requirements in order to present this
recommended option. These key drivers are considered below.
 
Operational Considerations: The recommended
option:
1. 
maximises the opportunity to address the current water deficit in
the borough, by delivering much needed training pool facilities.
This will meet the needs not just of schools, but also adult
learners from a wide range of backgrounds and needs. A key element
of a modern training pool is the provision of a moveable floor,
which varies the depth of the pool and enables flexible
programming. The existing pool is not able to be adapted to include
a moveable floor because this would require the breaking out of the
existing intact historic pool tank.
 
2. 
provides additional Health & Fitness facilities (180 stations,
an increase of 80 stations from the existing provision, including a
separate programmable space to replace the existing 19 station
programmable gym).
 
3. 
provides 2 large, flexible studio facilities, one of which will be
an upgraded group cycle studio.
 
4. 
replaces the current non-compliant sports hall with a new compliant
2-court sports hall, with appropriate run off areas to accommodate
badminton etc.
 
5. 
upgrades failing building fabric, and mechanical equipment &
plant (MEP) to deliver modern performance standards, i.e. ensuring
the facilities have environmental conditions which are more
pleasant and appropriate to the uses they are supporting e.g. good
ventilation and air quality, appropriate air and pool
temperature.
 
Project Cost: The projected cost of the
recommended option, as set out in paragraph 7 (and detailed further
in Exempt Appendix 1), is £71.442m. This target cost is
estimated to be £15m more than the Do Minimum option, and is at a greater level of
due diligence as a design. Given the current condition of the
building, and the need to invest at least £56.445m in order
to keep the asset operational and avoid its being mothballed, the
incremental increase to modernise the building in line with current
day needs is compelling and would offer the best opportunity to
maintain a viable facility in the medium to long term future.
 
In addition, as set out later in the report,
investment in the current facility is projected to increase the net
income which the facility will generate, through additional
footfall and facilities. Future income is prudently modelled to
increase by £272k per annum compared with existing levels.
Further consideration on the impact of this income is set out in
paragraph 7. 
 
Heritage and Planning Requirements: The
Council has an obligation to protect the facility, as a Grade II
Listed Building. This presents a challenge, given the use specific
nature of the spaces within the building, e.g. the original three
large voids which housed the three pool halls. As a building which
is best suited to wet leisure uses, the proposal to reinstate the
pool previously designated as the ‘ladies pool’
(currently the sports hall), balances both the operational demand
with the protection of the building’s heritage. Whilst
subdivision of these pool hall spaces has been considered, to
provide greater flexibility of use, this has not been supported
from a conservation perspective by the Local Planning Authority
(LPA) or Historic England.
 
Planning requirements to upgrade the building
fabric within an historic building are bespoke, yet the drive to
enhance the environmental conditions, operational performance, and
enjoyment of the spaces all pulls towards a fundamental upgrade of
the building’s failing fabric and MEP. This has presented an
opportunity to secure additional funding through the
Government’s Public Sector Decarbonisation Grant (PSDS) to
secure £3.287m of grant funding (matched by £0.7m from
within the project) to ensure that the building can move from gas
boilers to Air Source Heat Pumps (ASHP) - saving 495 tCO2e per
annum.
 
The building will also include the flexibility
to connect to a District Heat Network in the future, probably as
part of any future Hackney Central Heat Network. The option to
connect to the heat network will provide a useful plant replacement
strategy when the proposed ASHP plant reaches its end of life.
 
The social benefits and viability of the
business model have also been considered:
1. 
Social Value. As part of the cross borough GLL contract monitoring,
social value calculations are presented. For the period April 2023
to March 2024, the total social value attributed to Kings Hall was
£2.125m per annum across 17,514 participants.
 
2. 
Should the construction procurement move to a main contract award,
the Pre Construction Services Agreement contractor has committed to
the delivery of social value outcomes equating to £13.7m.
These are calculated using a Construction Industry Training Board
(CITB) compliant method and include the delivery of 30 apprentices,
and a guaranteed commitment to 30% local labour and local
spend.
 
3. 
Viability: In order to assess the business viability of the
proposals, a 10-year revenue model has been developed. This
theoretical model looks at the impact of the facility upgrade on
the likely performance of the individual Leisure Centre. In
reality, these figures don’t stand alone, as they are part of
a broader borough wide Leisure Management Contract with GLL;
however, these assumptions show the relative benefit (against the
current baseline) of upgrading the facilities.
 
4. 
Income has been informed by the current programme of usage and
prices at the existing Centre, to ensure a local perspective is
considered.
 
5. 
Based on 2022/23 figures, there was a Health and Fitness membership
of 3,913 and an annual visitor throughput of circa 322,000. A
Latent Demand report produced by The Leisure Database Company for
the KHLC catchment area, projects that the catchment area could
generate 4,524 Health and Fitness memberships (circa 600 above the
current level). This was used to inform the target membership
level, and was uplifted by 40% on the basis that such forecasts
tend to be conservative and reality outperforms these forecasts by
circa 40%.
 
6. 
Swimming income has been revised to reflect the addition of an
additional training pool and typical income per court for the new 2
court sports hall. This revenue model also factors in the two
multipurpose activity studios, consultation rooms, sauna and steam
facilities and vending areas.
 
7. 
The standalone net revenue improvement was assessed at an increase
of just under 200%. The main area for potential improvement in
revenue performance will be the cost of utilities. Currently, the
forecasts are circa 300% higher than historic utility costs per m2.
The actual cost, in operation, will become clearer as the design
and specification is developed further and could lead to a
significant reduction in these costs, assuming that utilities costs
reduce from the recent high levels, back towards historic
levels.
 
8. 
In order to understand the potential impact that the investment in
KHLC would have on the overall performance of the Leisure
Management Contract and potential revenue to the Council, Max
Associates have carried out a desktop exercise to project the
potential income which could be generated from a new contract, once
the existing contract with GLL expires in March 2029.
 
9. 
The tendering of a new contract would take into account the
investment which the Council has put into the leisure estate since
the extension of the existing contract with GLL. The re-tendering
of this contract also enables the Council to consider different
commercial structures and operating models, which could optimise
the income delivered from the Contract.
 
10.The Max Associates modelling
suggests that, even if prudent assumptions are made in relation to
future income and expenditure, then a future contract could
contribute to the Minimum Revenue Provision (MRP) and Interest
payments required to fund the KHLC refurbishment scheme. This is
further considered in the Financial Implications.
 
DETAILS OF ALTERNATIVE OPTIONS CONSIDERED AND
REJECTED
 
This report will now go on to consider why the
alternates, which have been considered to the recommended option,
have been rejected. Whilst not comparing like for like, these
options have been assessed against the same categories, to allow a
thorough comparison to be made.
 
Discounted Options are as follows:
1. 
Do Nothing (Mothball) - Close KHLC, mothballing it safely,
accepting that the building is at the end of its life, cannot
continue safely as a patch and mend, and is not marketable due to
its condition and existing fabric constraints.
 
2. 
Do Minimum (Refurbishment) - Carry out a major refurbishment,
enabling the building, and its current facility mix to remain
safely open for another 50 years. Provide a new level entrance on
Clapton Square.
 
Do Nothing (Mothball): Assumptions and Scope.
As set out earlier, the facility is not able to remain open on the
basis of a patch and mend / temporary works approach. It thus
follows that if a decision is made not to progress with either of
the refurbishment options presented in this report, then the
facility would need to be closed to minimise additional patch and
mend spend, and increased risk of building fabric failure. The
timing of such a closure would require further discussion and due
diligence should this option be subsequently progressed.
Assumptions relating to this option are further expanded as
follows:
 
1. 
The building has no marketable value: Following discussions with
two local Sales Agents, the informal feedback which was given was
that the property was unlikely to be of market interest. This was
for the following main reasons:
· 
The current condition of the building would require any developer
to address critical building fabric condition issues, in addition
to any use specific refurbishment and redevelopment plans. This
baseline ‘burden’ has been estimated by AtkinsRealis as being in the region of £20.2m
to £22.3m and includes building fabric repairs, a light touch
refurbishment of floors, walls, ceilings (including those required
to make good structural repairs) and a light touch service and
maintenance of existing mechanical equipment & plant. This
would be required before any use specific development and planning
requirements. This burden would need to be taken into account in
the assessment of any Land Value payment by a potential
developer.
· 
The restrictions placed on the use of the asset, from a Listed
Building and planning perspective, e.g. retention of historic
building layout & facades, maintenance of the historic pool
hall voids (without subdivision), retention of existing roof
lanterns etc. This would significantly limit the remodelling of the
spaces for alternate uses, and points towards the building’s
existing use being the most suitable.
· 
The current cost of capital, and
· 
The lack of a viable development model in light of the above.
 
2. 
CBRE was commissioned to provide a second opinion and test the
hypothesis that there is currently no market to dispose of the
asset for development. This focused on its most likely use - within
the leisure and sports sector.
 
3. 
Following a desktop analysis of nine potential leisure/sports uses
against key factors impacting marketability (local demand, site
fit, development accretive, site price), their report concludes
that there does not appear to be an obvious choice of
leisure/sports use that will suit the constraints, and produce a
price that will exceed the baseline ‘burden’ / capital
expenditure costs which are required to address the asset’s
current condition.
 
4. 
A red/amber/green risk status was assigned against each of the four
key factors in each of the nine uses. Each use considered contained
at least one red traffic light, and a red rating in any of the four
assessment categories makes it difficult to justify the viability
of the use.
 
5. 
The largest issue was the ability to obtain a site price above the
baseline costs required to address existing condition issues;
notwithstanding that this baseline cost is a low estimate of basic
need - and would require additional refurbishment costs to upgrade
the building for its intended use (as is assessed in the ‘Do
Minimum - refurbishment’ option in this report for its
retention as a Local Authority leisure centre).
 
6. 
In addition, it was assessed that the majority of leisure sectors
are not development accretive, i.e. they do not tend to increase
the company’s earnings per share (EPS).
 
7. 
CBRE also restated the limited marketability of the property for
traditional use class development, as previously fed back from
similar enquiries with other brokers.
 
8. 
Decommissioning: The facility would need to be decommissioned
appropriately, to ensure that the building is left in a safe
condition, and is continued to be monitored. As such, the following
headline actions would need to be carried out:
1) 
Decommissioning of the facility, retaining any utilities and MEP
which are required for health and safety purposes, e.g. lighting,
fire safety, alarms etc.,
2) 
Draining of the pool tank, which will potentially require temporary
works to protect the integrity of the structure once the volume of
water has been discharged,
3) 
Protection of the public facing facades, which may be at risk of
failure, i.e. by the purchase and erection of scaffolding and
netting to protect falling masonry from passers by,
4) 
Statutory compliance testing on an annual basis relating to any
health and safety related requirements,
5) 
Continuation of monthly structural surveys and remediation to
assess and address any condition issues which present a health and
safety risk, including replacement and/or additional structural
propping, protection of any failing facade etc, and
6) 
A 24/7 site security presence (based on two man security or one dog
handler and dog).
 
9. 
Sunk Costs. In this scenario, there would also be circa
£3.548m of sunk project costs which would have been spent by
the end of September in order to progress the refurbishment
project. These have been added into the capital costs associated
with this option.
 
10.Costs

 
11.Capital Costs: In order to
provide an estimate of the capital costs which would be required to
mothball KHLC, the Council’s cost consultants (AtkinsRealis) have produced a budget cost plan -
this is estimated at total project cost of circa £2.585m as
at 11 July 2024. A cost summary is included at Exempt Appendix
1.
 
12.The average annual spend on KHLC
across FY 22/23 and FY 23/24 was £178k of revenue spend and
£144k of capital spend. (refer Exempt Appendix 2). It is
unlikely that this quantum would reduce in years going forward if
the building was mothballed as there would still be an obligation
to repair and maintain the building to avoid further degradation
and disrepair of the building fabric - particularly as it is a
Grade II Listed building. A revenue allowance of £322k has
thus been included in the options comparison.
 
13.In addition to this, there would
be a need for 24/7 security costs, estimated at £390k per
annum, together with an allowance for utility and annual statutory
testing costs. Together, this would lead to a potential annual
revenue burden of circa £750k per annum. This does not
account for any catastrophic failures relating to the structure,
which would need to be addressed to maintain a safe structure and
protect the Grade II Listed building’s fabric.
 
14.Viability: Potential further
degradation (as a mothballed asset) makes the building less likely
to be viable in the future; with an ever increasing cost to bring
the asset back to an operational condition.
 
15.Strategic Risks: The following
strategic risks relate to this option:
 
· 
The Council has an obligation to maintain and protect the asset.
Under Section 48 of the Listed Building Act 1990, the Local
Planning Authority (LPA) has the ability to serve a Repairs Notice
on the owner of a Listed Building specifying those works it
considers reasonably necessary for the proper preservation of the
building. Section 54 powers also enable the LPA to execute works
which appear to be urgently necessary for the preservation of a
Listed Building in their area.
· 
Historic England ‘At Risk’ Register. A preliminary
visit has been held by Historic England, to consider whether the
KHLC should be added to the national ‘At Risk’
register. This list provides an annual snapshot of the health of
designated assets and to assess priorities for action and funding
decisions. To date, the facility has not been added to this list,
but should refurbishment plans not proceed and the building
continue to deteriorate, then it is likely that the asset will be
added.
· 
Reputational Risk. The risk of not progressing with a manifesto
commitment and/or the abandonment/further degradation of a much
loved community asset.
· 
Commercial Risk. Given that the refurbishment of KHLC was
anticipated within the renegotiated GLL contract, should this
refurbishment not occur and/or the facility was closed, this may
result in commercial implications for the Council.
 
Do Minimum (Refurbishment). This major
refurbishment option has the following assumptions and
considerations:
 
1. 
Assumptions and Scope: This is based on the Do Minimum
(Refurbishment) option, and has the following headline scope:
· 
Major refurbishment and renewal of the current facilities, enabling
the life of the facility to be extended for a further 50 years,
· 
Upgrade of the building fabric in order to enable the building to
perform in line with modern standards and Building Control
requirements (as far as possible within the context of an Historic
building),
· 
The addition of a new level entrance to Clapton Square, and
· 
Facility mix and leisure facility offer remains as currently
provided.
 
2. 
Operational Demand:
 
3. 
Cost: As at July 2024, the current day budget estimate provided by
AtkinsRealis is £56.445m (please
refer to the cost summary at Exempt Appendix 1). It is of note that
this cost estimate has not undergone the elemental cost analysis
which the recommended option enjoys, and so there is a greater
degree of risk attached to this estimate. In order to provide a
like for like cost estimate, the design would need to re-commence
at Royal Institute of British Architects (RIBA) Plan of Works Stage
2 and work through the detail of the option, with the contractor,
and the LPA.
 
4. 
Long Term Viability: There are a number of viability considerations
relating to this option:
· 
Given there would be no upgrade to the facilities e.g. to include
training pool facilities and a compliant sports hall, the
operational viability of the facility in the long term is
compromised and, despite significant capital investment, the
facility would be suboptimal. This may limit its long term future,
failing to meet the demand and losing dry side customers to more
modern public and private facilities; and
· 
Such a refurbishment, whilst prolonging the life of the building,
could be considered short term, as it fails to address the
evolution of the asset to ensure its long term viability.
 
5. 
Strategic Risk: One of the key strategic risks, that of the
facilities ongoing operational viability, is set out above. In
addition, the following risks are associated with this option:
· 
Planning/Listed Building Consent Risk: Given that this option
focuses on the upgrade and refurbishment of key elements, such as
structure and MEP, this will require significant interventions
which will need to be sensitive to the existing historic fabric and
finishes. Agreement will need to be reached with the LPA and
Historic England in respect of how far the refurbishment goes, and
consequential upgrade of the building’s performance /
reinstatement of historic fabric. Having agreed the principles of
the recommended option, this would open up a new pre-application
discussion, leading to programme delay and heightened planning and
Listed Building consent risk. As stated above, the design -
currently ready to commence RIBA Plan of Work Stage 4, would need
to revert back to the beginning of Stage 2 (which the project
commenced in January 2023). This presents a cost risk; both in
terms of programme elongation and delivering within the existing
cost assumptions.
· 
Value for Money: Given the historic considerations above, and a
likely pressure from stakeholders to challenge how much is done as
part of any refurbishment, this option is likely to offer less
value for money than the recommended option; where elements of new
build offer a more efficient and defined delivery solution.