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Valuation Report Mayfield House

256 Banbury Road

Oxford OX2 7DE

T: 01865 517000

F: 01865 310653

Heston House

201- 209 Vicarage Farm Road

Hounslow

TW5 0AH

On behalf of London Borough of Hounslow

As at 31st July 2015

London Borough of Hounslow/Heston House, 201 - 209 Vicarage Farm Road, Hounslow TW5 0AH

Valuation Date: 31st July 2015

Contents

1 Executive Summary ..................................................................................................................................... 3 2 Client ............................................................................................................................................................ 5 3 Instructions ................................................................................................................................................... 5 4 Identification and Status of the Valuer ......................................................................................................... 5 5 The Subject of the Valuation ........................................................................................................................ 6 6 Basis of Value .............................................................................................................................................. 6 7 Valuation Date ............................................................................................................................................. 7 8 Inspection ..................................................................................................................................................... 7 9 Location ........................................................................................................................................................ 7 10 Description ................................................................................................................................................... 7 11 Construction and Specification .................................................................................................................... 7 12 Accommodation ........................................................................................................................................... 8 13 Services ....................................................................................................................................................... 9 14 Apparent State of Repair ............................................................................................................................. 9 15 Contamination / Environmental Issues ........................................................................................................ 9 16 Statutory Enquiries ..................................................................................................................................... 10 17 Local Authority ........................................................................................................................................... 10 18 Planning ..................................................................................................................................................... 11 19 Local Taxation ............................................................................................................................................ 12 20 Tenure ........................................................................................................................................................ 12 21 VAT and Taxation ...................................................................................................................................... 12 22 Special Assumptions .................................................................................................................................. 12 23 Summary of Recommendations ................................................................................................................ 12 24 Market Conditions ...................................................................................................................................... 13 25 Valuation Approach and Reasoning .......................................................................................................... 13 26 Valuation .................................................................................................................................................... 20

Appendices

1 Confirmation of Instructions 2 Location Plan 3 Site Plan 4 Photographs 5 Residual Appraisal



1 Executive Summary

The following provides a brief synopsis only and should be read in conjunction with the main body of the Report, the Assumptions and Recommendations contained therein.

1.1 Client

London Borough of Hounslow For the attention of: Karen Campbell MRICS, Interim Senior Asset Manager Corporate Property

1.2 Property

Heston House, 201 - 209 Vicarage Farm Road, Hounslow TW5 0AH

1.3 Summary Description

The existing property comprises a local authority operated residential care home, constructed in the 1960s with evidence of more recent extensions. We understand that the property was subject to remodelling and refurbishment in the 1990’s reducing the original room numbers down to the 60 currently provided.

The property is generally of traditional brick construction beneath pitched tiled roofs with part comprising flat asphalt roofs. We have carried out an internal inspection of the property and received building plans from you. The existing accommodation provides a total of 60 bedrooms typically arranged along corridors, with supporting communal lounge and dining facilities in addition to administrative office accommodation, plus laundry, storage and kitchen areas. All bedrooms have wash basins only and there are no en-suites provided.

From the plans supplied, we note that the existing building has a total gross internal floor area of 3,072 m² (33,067 ft²).

We calculate an overall site area at approximately 3.14 acres (1.27 hectares) as outlined Red on the site plan at Appendix 3 although all values reported are in respect of the identified Blue land only.

1.4 Tenure

Our valuations are provided on the assumption of good freehold title with no third party leases and, in addition, we have assumed that there are no onerous covenants or restrictions that would impact on the valuations reported.

1.5 Principal Valuation Considerations

Strengths

Densely populated residential area.

Regular and level site.

Potential for alternative uses.

Access to public transport.

Weaknesses

The existing building is deemed at the end of its useful life.

We understand that currently there are no planning permissions in place for any of the alternative uses considered within this report.



Some mature trees which may need to be retained on redevelopment

Recommendations

We note that the proposal involves a dual use of the site on redevelopment (part school/part care home) and, accordingly, it will be necessary to ensure that both elements have appropriate rights of access to the public highway.

We further note that the proposed school site (Blue land) enjoys considerable frontage to the public highway and we question if the new care home proposed should be positioned at the front of the site instead with the new school to the rear of it. Typically, modern commercial care home operators will require a high degree of visibility for their developments.

1.6 Valuation

The following should only be read in conjunction with the full content of this Report as important

comment on approach and valuation reasoning is contained.

All valuations concern the Blue land only (1.70 acres/0.69 ha).

Market Value 1 (MV1): £2,250,000 (two million two hundred and fifty thousand pounds) Care Use. This valuation is in respect of the Blue land only (1.70 acres/0.69 ha) and on the assumption of an outright freehold sale with no restrictions on use. This valuation is on the basis of the exiting care use. This valuation assumes vacant possession and that the current planning use is lawful.

Market Value 2 (MV2): £2,150,000 (two million one hundred and fifty thousand pounds) Education Use. This valuation is in respect of the Blue land only, as above, and on the assumption of a 125 year ground lease at a peppercorn with a restricted use. This valuation is in respect of the Blue area only of 1.70 acres/0.69 ha. This valuation assumes vacant possession and planning consent for this use.

Market Value 3 (MV3): £3,250,000 (three million two hundred and fifty thousand pounds) Residential Use. This valuation is in respect of the Blue land only, as above, and on the assumption of an outright freehold sale with no restrictions on use. This valuation is in respect of the Blue area only of 1.70 acres/0.69 ha. This valuation assumes vacant possession and planning consent for this use. Valuer: Richard Waterson MRICS (Partner) Reference: RMW



Client

London Borough of Hounslow Civic Centre Lampton Road Hounslow TW3 4DN

Neither the whole nor any parts of the report nor any reference to it may be included in any published document, circular or statement nor published in any way without the Valuer’s written approval of the form and content in which it may appear.

2 Instructions

In accordance with your email instructions dated 28th July (Appendix 1) we now submit our Report

required for purposes of facilitating the proposed off market sale of part of the site to accommodate a new free school which will be located on the Blue land at the front of site and comprising 1.70 acres / 0.69 ha. We have accepted the instruction on the basis of reporting to you on 3

rd August 2015 and our

valuation is as at the date of inspection, namely 31st July 2015.

The three bases of valuation required are as follows;

Market Value 1 (MV1) Care Use

Market Value 2 (MV2) Education Use

Market Value 3 (MV3) Residential Use

Our Valuation Report is prepared in accordance with the appropriate sections of the current RICS Professional Standards (PS) and RICS Global Valuation Practice Statements (VPS) contained in the RICS Valuation – Professional Standards 2014 incorporating the IVSC International Valuation Standards (the ‘Red Book’).

This report may be investigated by the RICS for the purposes of the administration of the Institution’s conduct and disciplinary regulations.

This report is provided for the stated purpose and for the sole use of the named client. It will be confidential to the client and its professional advisors. The Valuer accepts responsibility to the client alone that the report has been prepared with the skill, care and diligence reasonably to be expected of a competent Chartered Surveyor but accepts no responsibility whatsoever to any parties other than the client. Any such parties rely upon the report at their own risk.

We shall rely upon information provided by the client and / or the client’s legal or other professional advisors relating to tenure, leases and all other relevant matters.

3 Identification and Status of the Valuer

This valuation has been undertaken by Richard Waterson MRICS for and on behalf of Carter Jonas LLP.

We confirm that the Valuer has no known material connection or involvement with the subject of the valuation or the client save that we have previously carried out valuation work for the client, but not in respect of the subject site.

The Valuer is an RICS Registered Valuer and is in a position to provide an objective and unbiased valuation. The Valuer has sufficient current local and regional knowledge as appropriate for the scope of the instruction and for the property type and sectors involved together with knowledge of the



particular market together with the skills and understanding required and is competent to undertake the valuation.

4 The Subject of the Valuation

Heston House 201 - 209 Vicarage Farm Road Hounslow TW5 0AH All valuations concern the Blue land only (1.70 acres/0.69 ha) as identified in the plan below. The property is a local authority operated care home currently providing 60 bedrooms. The property is located on an overall site area of approximately 3.14 acres (1.27 hectares) as depicted by the Red site boundary below.

We understand the property is currently owner occupied and the intention is that the property will be subject to re-development where the current proposals are that a new free school is constructed on the Blue land identified below and a new care home on the remainder to the rear.

5 Basis of Value

Market Value (MV) as defined in VPS4 of the ‘Red Book’ being:

‘The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’



6 Valuation Date

Our valuation is as at 31st July 2015.

It should be noted that values change over time and a valuation given on a particular date may be not be valid on an earlier or later date.

7 Inspection

The property was inspected on Friday 31st July 2015.

During the course of our inspection, we were accompanied by a staff member from Heston House and given representative access to various internal areas, including typical bedrooms together with communal areas and support accommodation. We also inspected the property externally.

We have assumed there have been no changes in the physical characteristics of the property between the date of inspection and the publication of the report.

During the course of our inspection we were advised that closure plans are progressing with a current occupancy rate of approximately 50%

8 Location

The subject property is located on the eastern side of Vicarage Farm Road, between its junctions with Summerhouse Avenue and the Crossways, and within the Heston area of the London Borough of Hounslow which is bounded by the M4 to the north and the A30 to the south.

Vicarage Farm Road is a predominantly residential area and the subject property is surrounded by existing high density residential development typically comprising mature semi-detached houses with this form of development located directly opposite the property in Vicarage Farm Road also.

The area is well served by public transport connections with the closest underground station being Hounslow West located approximately 0.3 miles to the south of the subject property. This provides a Piccadilly Line service to Heathrow Airport and central London (Piccadilly Circus 38 minutes and Kings Cross St Pancras 47 minutes). There are also several bus stops along Vicarage Farm Road serving the local area.

The property is located in the middle of the Heston Central Ward.

A location plan is attached at Appendix 2.

9 Description

The overall extent of the property is indicated on the site plan attached at Appendix 3 where the totality of London Borough of Hounslow's ownership is shown edged Red (3.14 acres) with that part edged Blue (1.7 acres) being the site proposed for the new free school. It is proposed that the remainder of the site (rear part) will be developed to provide a new care home with vehicular access to Vicarage Farm Road along the northern boundary of the site.

Photographs are attached at Appendix 4.

10 Construction and Specification

The existing property comprises a local authority operated residential care home dating from the 1960s with more recent additions and extensions. It is generally of brick construction and the overall layout comprises two transverse main sections (one to the front and one to the rear) interlinked by a



longitudinal section. The majority of the property is built over ground and first floor levels with only limited parts rising to a second floor level (these are insignificant).

We have inspected the buildings internally and whilst it is apparent that maintenance has been carried out we did observe several areas requiring attention, although we assume that expenditure has be curtailed as a result of the proposed closure.

It is also evident that the existing built configuration is dated and not compatible with modern standards of building design, layout and servicing. Corridor and door widths are limited in some areas and bedrooms are provided with wash basins only with no en-suite shower or toilet facilities in individual bedrooms.

The principle characteristics of the existing specification are as follows:-

Heating is via perimeter radiators served by a central boiler plant.

Lighting typically comprises a mixtures of ceiling mounted fittings

The majority of wall finishes are plastered and painted to solid walls.

The majority of areas are carpeted with high traffic areas, being either tiled or laminated flooring. Some bedrooms have laminated flooring although this is not consistent across all rooms.

Ceiling finishes are a mixture of decorative finishes including Artex to parts

Doors are a mixture of styles with general external doors having been replaced by modern double glazed units but with many internal doors appearing to date from the original construction.

There is a passenger lift in each main wing of the building together with stairs access.

The external areas comprise a vehicular access point serving the main car park and main entrance to the side. There are open grassed areas to the south and east of the existing buildings which are mainly lawn and some established trees in this location which may require retention as part of any redevelopment scheme. The overall plot is enclosed by timber fencing although this is broken in several areas.

There is a gas governor compound and electrical compound located towards the front of the site and we assume that the utility companies have appropriate rights in respect of these installations.

The valuation includes plant and machinery, fixtures and fittings which would normally form an integral part of the building.

11 Accommodation

From the plans supplied, we note that the existing building has a total gross internal floor area of 3,072 m² (33,067 ft²). This information has been taken off floor plans provided by you and they are assumed to be accurate.

The overall site area is 1.27 hectares (3.14 acres). The site coverage is estimated to be approximately 25%. The site area has been calculated electronically using a Geographical Information System (GIS).

All measurements are approximate and calculated in accordance with the current edition of the RICS Code of Measuring Practice (the “Code”).



12 Services

Electricity Yes Water Yes Drainage Mains Gas Yes Broadband / Telephone Yes/Yes Written confirmation has not been obtained from the service providers and we are unable to report on condition or offer any warranty.

In the preparation of our valuations we have assumed that all services are available and to an appropriate capacity necessary to support the development assumptions made.

13 Apparent State of Repair

We have not carried out a building survey, nor have we inspected roof voids or those parts of the property which are covered, unexposed or inaccessible and such parts have been assumed to be in good repair and condition. We cannot express an opinion about or advise upon the condition of uninspected parts and this report should not be taken as making any implied representation or statement about such parts.

However, for the purposes of this report and for your information we make the following observations:

It is apparent that there are outstanding items of repair although we assume that these items have not been attended to given the impending closure. For example, we observed broken boundary fences, decayed facias and external paintwork and damage to car park surfacing.

In its current use we are of the opinion that the building is at the end of its useful economic life because of functional and age related obsolescence.

14 Contamination / Environmental Issues

14.1 Contamination

We have been instructed not to make any investigations, in relation to the presence or potential presence of contamination in land or buildings, and to assume that if investigations were made to an appropriate extent then nothing would be discovered sufficient to affect value. We have not carried out any investigation into past uses, either of the property or any adjacent land, to establish whether there is any potential for contamination from such uses or sites, and have therefore assumed that none exists. Should it be established that contamination does exist, this might reduce the value now reported.

No indications of past or present contaminative land uses were noted during the inspection. Our inspection was only of a limited visual nature and we cannot give any assurances that previous uses on the site or in the surrounding areas have not contaminated sub-soils or ground waters. In the event of contamination being discovered, further specialist advice should be obtained.

14.2 Other Environmental Factors

The property is shown by the Environment Agency (www.environment-agency.gov.uk) to be outside of the indicative floodplain.

The property is impacted by aircraft noise in relation to nearby Heathrow airport.

14.3 Hazardous and Deleterious Materials

Many building components contain asbestos but these can be difficult to identify particularly if encapsulated. There are significant health hazards associated when ingesting dust containing



asbestos fibres. Once asbestos based materials have been identified, care should be taken to avoid their disturbance or removal. Such work should only be undertaken by a licensed asbestos contractor and this can be a significant cost.

The Control of Asbestos at Work Regulations 2006 requires asbestos to be managed in non-domestic premises. The practical effect of this is the imposition of a legal duty on every employer in non-domestic premises to make an assessment (the Asbestos Survey) as to whether asbestos is present or is liable to be present and if so to prepare a plan and for managing the health risks arising (the Management Plan) and keep this up to date as necessary.

During our inspection we were not provided with an Asbestos Survey or Management Plan. We are unable to confirm whether the property complies with the requirements of the Regulations.

As the building pre-dates 1999 there is a possibility of asbestos having been used in its construction or subsequent alterations.

The valuation given in this report assumes that no specialist removal of asbestos material is required in the foreseeable future. If this proves not to be the case this could affect the values now reported.

We have assumed that no other deleterious or hazardous materials have been used in the construction of the property or subsequently incorporated.

15 Statutory Enquiries

15.1 Fire Risk Assessment

The Regulatory Reform (Fire Safety) Order 2005 (SI 2005 No. 1541) came into effect on 1 October 2006. This requires the responsible persons for all non-domestic properties to prepare a Fire Risk Assessment (FRA).

During our inspection we were not provided with an FRA and we are unable to confirm whether the use of property complies with the requirements.

15.2 Disability Discrimination Acts

The Disability Discrimination Act 1995, as amended by the Disability Discrimination Act 2005, imposes a duty on employers and businesses offering a service to the public to make reasonable changes to practices and procedures to enable disabled people to do their jobs, or remove or alter any feature that makes it impossible, or unreasonably difficult for a disabled person to make use of the service provided. The duty of compliance rests with the occupier.

During our inspection we were not provided with a Disability Discrimination Audit and we are unable to confirm whether the use of property complies with the requirements of the Acts.

15.3 Energy Performance Certificate

In England and Wales the Government has implemented the Energy Performance of Buildings Directive requiring Energy Performance Certificates (EPC) to be made available for all properties (with limited exceptions), residential and commercial, when bought, sold or rented. The Certificate is valid for ten years and includes an Energy Efficiency Rating between A (most efficient) and G.

During our inspection we were not provided with an EPC and we are unable to confirm whether the use of property complies with the requirements of the Directive.

16 Local Authority

London Borough of Hounslow Civic Centre Lampton Road



Hounslow TW3 4BN www.hounslow.gov.uk

17 Planning

17.1 Planning Enquiries

We have made online enquiries of the Local Planning Authority and in so doing have assumed that all information obtained is correct and accurate.

17.2 Local Planning Policy

Three Development Plan Documents (DPDs) form part of the Borough's Development Plan and will continue to inform planning decisions until the new Local Plan is adopted which has recently completed a period of examination closing on 16th April 2015. Currently, the Inspector's report is awaited.

We note that that within the proposed site allocations (Cranford and Heston) there is no specific proposed site allocation for Heston House.

The plan period for the new Local Plan will be from 2015 to 2030.

In terms of affordable housing, the proposal plan states that the Council's CIL and Local Plan Viability Study shows that in most cases schemes can accommodate affordable housing requirement of between 10% and 40% (without grant funding) and between 30% and 40% in higher value areas. The proposal plan states that an affordable housing target of 40% has been set by the Council over the lifetime of the plan. Further, and in terms of tenure of affordable housing, it is proposed to achieve a split of 60% (affordable/social rent) and 40% (intermediate housing), the latter being in recognition of the role which intermediate housing can play in freeing up social rented accommodation elsewhere. The proposed 60/40 strategic split is stated as a starting point for negotiation with an acknowledgement that deliverability depends on individual site circumstances, including financial viability.

With regards to Community Infrastructure Levy (CIL), the Council's charging schedule was agreed by the full Council on 14th July 2015 following receipt of the Examiner's report. For residential development, the CIL system operates on a three zone basis (west, central and east) with the subject site being located within Zone 2 (central) where a CIL rate of £110 per sq metre for residential development applies. This is overlaid by a universal rate of £155 per sq metre for retail uses, a nil rate for healthcare and emergency services provision, and a £20 rate for all other uses.

17.3 Planning Permissions / Listings

We summarise below the relevant planning history as advised to us by the Local Planning Authority:

Application Ref: P/2003/2531 - Erection of single storey side extension to care home. Approved 11/09/2003.

Application Ref: P/2003/2137 - Erection of single storey extension to residential care home. Approved 22/08/2003

We are not aware of any other recent planning applications relating to the subject site and there is no historic precedence for redevelopment provided by the publically available information on the local authority planning website.

We are advised that the property is not listed as a building of special architectural or historic interest and not within the curtilage of a building so listed.

http://www.hounslow.gov.uk/



We have assumed that the lawful use of the property at the date of our inspection was Use Class C2 (residential institutions).

17.4 Potential for Change of Use

We have considered the potential for change of use within the alternative valuation bases reported although in all cases we note that there have been no recent planning applications and therefore our opinions have been based on adopted and emerging planning policy when arriving at the valuation figures reported. The existing use as a care home is assumed to be lawful in planning terms.

18 Local Taxation

We have been advised by the Local Authority that the Council Tax Band for the residential accommodation at the property was D and the Council Tax payable for the financial year 2015/16 was £1,374.77 (gross charge without deductions).

19 Tenure

We are instructed to value the freehold interest in the property with the benefit of vacant possession.

We have not inspected the deeds of the property and for the purposes of our valuation have assumed that they contain no onerous terms, restrictions, covenants, encumbrances or outgoings that would adversely affect the usual value and that good title can be shown.

We have assumed that the property and its value are unaffected by any matters which will be revealed by a local search and replies to the usual enquiries, or by any statutory notice, and that neither the property nor its condition, nor its use, nor its intended use is or will be unlawful.

20 VAT and Taxation

We have not made any adjustments to reflect any liability to taxation that may arise on disposal, nor for any costs associated with disposal incurred by the owner. No allowance has been made to reflect any liability to repay any government or other grants, taxation allowance or lottery funding that may arise on disposal.

21 Special Assumptions

The following Special Assumptions have been made in respect of all valuation bases (MV1, 2 and 3)

Vacant possession

No adverse covenants or restrictions on title unduly influencing the alternative uses

No abnormal ground conditions or exception construction costs

Planning permission exists

22 Summary of Recommendations

We recommend that the proposed 125 year lease of the Blue land is granted at the agreed sum of £3,500,000 subject to a peppercorn rent and the usual 125 year lease terms as provided by the DfE model leases terms.

Further, we recommend that consideration is given to allocating the new free school site to the rear part of the site thereby leaving the frontage land available for a care home. This is particularly relevant if the care home is to be operated on a full commercial basis where such visibility is important.



23 Market Conditions

Commentary on market condition for relevant sectors have been provided below and in respect of care and residential valuations only (MV1 and MV3) given that there is no identifiable market for educational sites save those acquired under the EFA processes being followed in respect of the subject site.

24 Valuation Approach and Reasoning

Within this section we have summarised our valuation approach and reasoning in respect of the three valuation bases on which we are instructed.

Market Value 1 (MV1): Care Use. This valuation is in respect of the Blue land only (1.70 acres / 0.69 ha) and on the assumption of an outright freehold sale with no restrictions on use. This valuation is on the basis of the exiting care use. This valuation assumes vacant possession and that the current planning use is lawful.

It is evident from our inspection, the age and design of accommodation and published reports by LBH that the property is considered no longer fit for purpose. We have therefore concluded that the current structure has reached the end of it economic life and therefore our valuation in existing use is effectively a land valuation only. We do not consider that any private operator would retain the existing building due to the inherent poor design by modern standard and if the property were sold in this use the only realistic option is demolition and redevelopment. Our reasoning for this conclusion is summarised below.

The property was built in 1960s and the accommodation is considered dated by modern standards when compared to more modern care homes in the area. It was totally refurbished in the early 1990s and the number of beds reduced from 100 to 60 (it is currently registered for 60 places). The care home is registered with the Care Quality Commission (CQC) for Residential Care (no nursing care) in the categories Older People, Dementia, Physical disabilities and Sensory impairments. The A-Z Care Homes Guide notes the care home as having 60 bedrooms but no en-suite facilities (a requirement for any modern care home).

Current occupancy is below 50% although at the time of the consultation paper at the start of 2015 there were 36 residents – a 60% occupancy level which the consultation paper correctly states is uneconomic and unsustainable. The consultation paper goes on to say that demand for traditional residential care beds has been reducing as a result of the success of LBH and NHS policies to support more people in their own homes. Growing numbers of older people and those requiring residential care have chosen alternative provision, such as extra care schemes where more support is given to people so that they can live in their own home.

LBH have considered rebuilding or a full refurbishment of Heston House. To rebuild Heston House to match the standards of the Sandbanks home would cost an estimated £10 million. The estimated cost of a full refurbishment to meet current standards is £5 million. In our opinion it would cost around £6m to demolish, build and fit out a new, corporate standard 60 bed care home in this location. Any refurbishment of the existing structure will be a compromise.

The consultation document mentions Heston House losing referrals to a number of more modern, purpose built care homes. Our research indicates the main competing care homes in the area include:

Vicarage Farm, 139 Vicarage Farm Road, Hounslow TW5 0AA (0.1 miles). A care home with nursing registered for 59 residents in 59 bedrooms (42 en-suite).

Cloisters Care Home, 70 Bath Road, Hounslow TW3 3EQ (0.9 miles). A purpose-built home registered for nursing care with 57 beds in 56 bedrooms, but only 18 en-suite.



Ash Grove, Fir Tree Road, off Martindale Road, Hounslow TW4 7HH (1.0 mile). A purpose built care home operated by HC – One (probably ex Southern Cross) registered for 50 nursing beds in the categories OP and DE in 50 en-suite bedrooms.

Norwood Green Care Home, Tentelow Lane, Southall UB2 4JA (1.1 miles). A purpose built care home with nursing with 92 beds in 92 single en-suite bedrooms. Operated by Four Seasons Health Care.

Whitefarm Lodge, Vicarage Road, Whitton, Twickenham TW2 7BY (1.9 miles). A modern, purpose built care home registered for 60 nursing beds in 60 en suite bedrooms operated by Care UK.

The market is moving towards quality and those care homes with en-suite facilities which have a competitive advantage over those care homes without, namely, they will attract referrals at the expense of those care homes with inferior accommodation. In addition, it is every local authority declared intention to refer fewer people to residential care homes, preferring instead to provide home care or encourage people to move into an extra care scheme. Whilst some residential care homes are beating this trend, they tend to be the better quality care homes in the area. The main growth is in the nursing sector for people with a high dependency or more challenging forms of dementia.

We are of the opinion that no operator would take on Heston House as an operational entity given the low occupancy, above average staff wage rates (assumed based on other local authority care homes), TUPE and the need to reconfigure / refurbish. To reconfigure / refurbish will probably still lead to something that is inferior when compared to purpose designed care homes. Therefore, we conclude that the existing use value is only as a development site for a new purpose built care home.

Ideally a care home operator requires the site to be in a prominent position within a residential area, close to arterial routes with a population in excess of 50,000 within a 5 mile radius. Depending on transport links and number of floors, the site needs to be around 0.8 – 1.5 acres depending on the care model adopted (the average size of new registrations is c. 60 beds but some prefer around 50 beds and others 80 plus).

We have therefore based our calculations on an assumed 70 bed care home (assume three storey) and we are of the opinion that, based on comparable evidence, it is realistic to base the land value on a ‘per bed space rate’ of £32,000 which produces a land value as follows;

70 beds x £32,000 / bed = £2,240,000 / 1.7 acres = £1,318,000 / acre.

An overview of the comparable information we have used is:

Egham backing onto the M25 was sold in 2014 for c. £32,000 / bed.

In 2013 a 0.82 acre site at Apsley, Herts with consent for 64 beds was sold for £35,938 / bed.

In 2014 offers for a site in Shepperton at £50,000 / bed

Worthing site under offer at £31,250 / bed.

Our adopted value is therefore £2,250,000 (MV1) for the Blue land in care use

It should be noted that potentially a 70 bed care home could be accommodated on a site smaller than 1.7 acres although the overall land value would not differ substantially.



Market Value 2 (MV2): Education Use. This valuation is in respect of the Blue land only and on the assumption of the 125 year ground lease at a peppercorn with a restricted use. This valuation assumes planning permission for this use although we note that no consent for an education use currently exists although we consider it a reasonable prospect that such consent will be achieved. Our valuation assumes vacant possession.

It must be considered that the EFA will only acquire land initially by competing by competing fully (matching) the best Market Value in alternative use which in the case of Heston House is MV3 (residential).

The following is extracted from the client brief supplied to us;

The intention is now to grant a 125 year ground lease to the EFA. However as the highest value is expected to be driven by a residential development we would look forward to receiving the valuer’s initial feedback on how this might affect value. The intention however is not to sell the freehold.

For the purposes of this valuation we have not received any detail regarding the proposed 125 year lease terms and therefore we assume that the model terms as detailed below will be followed.

DfE have produced a template lease for free schools and it is typically expected that the template lease will be used without amendment. The Education Funding Agency (EFA) will conduct initial negotiations with the relevant landlord and the resulting heads of terms will make it clear whether or not this lease is to be utilised. The model lease contains some optional wording to cover the situation where there is a Local Authority landlord. The model lease contains important provisions to reflect the fact that institutions opening as part of the free school programme often have an element of capital funding relating to a programme of works. This lease therefore protects the Secretary of State's investment in the land and buildings.

The ground lease is granted for a term of 125 years at a rent of one peppercorn per annum and key elements include;

Clause 3.3 - repair and upkeep: the tenant agrees with the landlord to keep the property clean and tidy, make good any damage caused and any deterioration from the commencement of the term of the lease. The landlord has limited rights to enter the property and carry out repair works in the event of persistent breaches by the tenant causing a safety hazard. In such cases, the landlord can charge the cost of these works to the tenant.

Clause 3.5 - alterations and additions: there is a general restriction on making either structural or external alterations without first securing landlord's consent but such consent can only be withheld on limited grounds. If the lease is being agreed as part of a wider development programme, consent for these works is usually contained in a supporting document such as an agreement for lease or development agreement and this restriction is then taken to apply to future alterations after that project has completed.

Clause 3.9 - use: the property can only be used for the provision of educational services and ancillary community, fundraising and recreational purposes.

Clause 3.12 - dealings: the tenant may share occupation with another academy trust or with any other person who provides services of an educational, community, fundraising or recreational purpose provided that such person or academy does not occupy as a sub-tenant and the arrangement is informal. Formal underlettings for 10 years or less are permitted without the landlord's consent but anything longer is subject to landlord's approval. In addition, the tenant's interest in the lease can be transferred wholly to the Secretary of State, another academy or a successor charity/public body without landlord's consent; or any other party with landlord's consent.

Clause 5 - insurance: buildings insurance must be procured by the tenant. Although variations to this may be agreed on a project specific basis, the preference is for tenants to procure insurance themselves.



Clause 6.1 - re-entry: if the tenant uses the property for a purpose that is not permitted by the lease; or fails to arrange insurance cover where required to do so, the landlord can end the lease early. Before doing so, the landlord must serve notice on the Secretary of State and give him the option to put right the breach or transfer the lease to another school trust. This provision is required to protect the capital investment in the property and will only arise where the current tenant has broken the relevant covenants in the lease.

Clause 6.7 - termination: there is a termination provision that brings the lease to an early conclusion if the funding agreement between the Secretary of State and the school trust is terminated. This clause contains an additional provision allowing the lease to be transferred to another school trust before termination occurs, which is intended to protect the capital investment in the site and also operates alongside a similar provision in the funding agreement.

Clause 11 - charity: until the institution operated by the tenant is open and operational, it is a non-exempt charity. Once operational, it is an exempt charity. This clause contains alternative wording depending upon whether the lease completes before or after the tenant becomes operational.

Clause 13 - break right: this clause is an option for the tenant only to end the lease at 25 yearly intervals subject to obtaining the Secretary of State’s consent. This avoids the tenant being tied into the lease for the full 125 year term where this is unnecessary for any reason.

Referencing the instructing brief we have been asked to consider how the grant of the 125 year lease will affect value.

The basis of the transaction is that the full Market Value of the site is paid by EFA at inception with only a peppercorn rent for the duration of the term. From the viewpoint of LBH there is currently the option to sell the land in the open market to the highest value today (residential) and from EFA’s point of view there is a need to fully compete with alternative (open market) uses in order to secure land for the proposed free school purposes.

Following grant of the lease the value of LBH’s reversionary value will be limited, particularly in the early years of the lease, and will be the deferred value of today’s current Market Value. For example, adopting £3,500,000 (equivalent to the agreed initial lease premium) would suggest a current reversionary value of £150,000 adopting an interest rate of 2.5% being equivalent to long term bond yields. As LBH are taking full value out at inception of the lease the valuation assumption must be that there will be no further income off the land for another 125 years despite potential for the land to revert earlier through, for example, the tenant exercise a break right.

Following the grant of the lease EFA will be tied to the user clause restrictions and all other terms of the lease. Usually, the valuation of the leaseholder’s land interest at this stage will recognise the characteristics of the school which has been built usually with an apportionment between land utilised for buildings and that used for outside spaces. These requirement will vary depend on the characteristics of the individual school where the valuation principle will be that non developed land is valued at a substantially reduced rate compared to the balance of the site.

We have not been supplied with any detail of the proposed free school although confirm that it would be appropriate to value the developed land at £1,915,000 / acre with the balance at a rate of £30,000 / acre.

The Blue land is 1.70 acres overall and in the absence of any further detail we have taken a two-thirds / one-third split between developed and undeveloped land which would produce a value in education use of say £2,150,000 calculated as follows;

1.70 x 66% x £1,915,000 = say £2,150,000

1.70 x 34% x £30,000 = say £17,500

Total = say £2,150,000 / 1.7 acres = £1,265,000 / acre



Our adopted value is therefore £2,150,000 (MV2) for the Blue land in education use.

Market Value 3 (MV3): Residential Use. This valuation is in respect of the Blue land only and on the assumption of an outright freehold sale with no restrictions on use. This valuation assumes planning permission for this use although we note that no consent for a residential use currently exists although we consider it a reasonable prospect that such consent will be achieved. Our valuation assumes vacant possession.

Our valuation approach here is to prepare a residual valuation based on our expectations of scheme density that would be anticipated under local plan policy. It is necessary to follow this approach because the site does not have any residential planning permission at present. Accordingly we have followed recommendations with regards to density and, importantly, we have adopted a 40% affordable housing content which is the target figure adopted by LBH. It may be possible at the time of planning application submission to negotiate a lower affordable housing density and in this case the land value will be increase. Until such time as negotiations take place however our view is that a ‘policy compliant’ affordable housing quantity should be assumed for the purposes of valuation.

With regards to the Blue land we consider that a scheme dominated by family houses is most appropriate given the characteristics of the surrounding area and therefore we have assumed a development of 38 units as follows;

Type Unit numbers Floor area adopted (sq ft)

Private 23 27,000

Affordable 15 18,000

Total 38 45,000

A development of this profile shows a density of 26,470ft2 / acre on the gross site area which represents a relatively dense form of development.

Our adopted value is therefore £3,250,000 (MV3) for the Blue land in residential use.

This valuation equates to a value of £1,915,000 / acre in residential use

We have also provide a sensitivity analyses illustrating the effects on calculated residual land value through stepped increases/decreases in the adopted variables of sales value and constructions costs and these findings are summarised in the table below where the ‘central’ figure is the reported land value of £3,250,000. The analyses maintains development profit at 20% in all cases and the table illustrates a maximum variation (unlikely) of land value from approximately £2,500,000 to £4,000,000 at the extremes.



A full copy of our residual appraisal is provided at Appendix 5 and we confirm our key inputs below.

ACQUISITION COSTS Stamp Duty 4.00% Agent Fee 1.00% Legal Fee 0.50% CONSTRUCTION Private Houses 28,000 ft² x £120.00 pf² Affordable Houses 17,000 ft² x £120.00 pf² Contingency 5.00% Demolition £100,000 Statutory/LA/CIL £150,000 PROFESSIONAL FEES Architect 2.50% Quantity Surveyor 1.50% Structural Engineer 1.50% Mech./Elec.Engineer 1.00% Project Manager 2.00% C.D. Manager 1.50% MARKETING Marketing 50,000 DISPOSAL FEES Sales Agent Fee 1.00% Sales Legal Fee 0.50% FINANCE Debit Rate 6.000% PROFIT Profit on Cost% 20.00%



With regards to sales values we have adopted a sales value of £360 per sq ft which we consider is realistic given the values achieved in the locality. The majority of transactions relate to existing stock where there is a range of values achieved depending on individual circumstances and we have reported a selection of these transactions below.

226 Vicarage Farm Road, Hounslow TW5

3 bedroom semi-detached house.

GIA 906 sq ft.

Sold £385,000 in March 2015.

£425 per sq. ft.

0.2 miles north of the subject. The above comprises a 3 bedroom semi-detached house located a short distance to the north of the subject property. The property measures approximately 906 sq ft and was sold for £385,000 in March 2015 which equates to a rate of £425 per sq ft. 78 St. Leonards Gardens, Hounslow, TW5

3 bedroom house.

Sold £393,000 in April 2015.

GIA 1,023 sq ft.

£384 per sq ft.

The property is located 0.2 miles west of the subject. This three-bedroom end-terrace house is located approximately 0.2 miles west of the subject site. The property sold for £393,000 in April 2015 equating to £384 per sq. ft. 7 Somerset Waye, Hounslow, TW5

Four bedroom 1930s semi-detached house.

Sold £497,000 in February 2015.

GIA 1,572 sq ft.

£316 per sq ft.

0.5 miles north-west of the subject. This is a four-bedroom extended period semi-detached house located approximately 0.5 miles north-west of the subject site. The property sold for £497,000 in February 2015, reflecting £316 per sq ft. 273 Vicarage Farm Road, Hounslow, TW5

Period 3 bedroom semi-detached house.

Sold £370,000 in April 2015.

GIA 1,033 sq ft.

£358 per sq ft. The above property is located just to the south of the subject site and measures approximately 1,033 sq ft. The property sold for £370,000 in April 2015 which equates to a rate of £358 per sq ft. Devon Waye, Heston, TW5

Four bedroom semi-detached house

Sold £395,000 in October 2014.

GIA 1,077 sq ft.

£367 per sq ft.



This property is located approximately 0.3 miles north of the subject site and comprises four bedrooms measuring approximately 1,077 sq ft.

25 Valuation

Market Value 1 (MV1) – Care Use

We are of the opinion that subject to the Assumptions and Special Assumptions in this Report the Market Value as at the valuation date was £2,250,000 (two million two hundred and fifty thousand pounds) exclusive of VAT

Market Value 2 (MV2) – Education Use

We are of the opinion that subject to the Assumptions and Special Assumptions in this Report the Market Value as at the valuation date was £2,150,000 (two million one hundred and fifty thousand pounds) exclusive of VAT. Planning consent or this use is assumed.

Market Value 3 (MV3) – Residential Use

We are of the opinion that subject to the Assumptions and Special Assumptions in this Report the Market Value as at the valuation date was £3,250,000 (three million two hundred and fifty thousand pounds) exclusive of VAT. Planning consent or this use is assumed.

This report and valuation has been carried out by Richard Waterson MRICS an RICS Registered Valuer qualified for the purpose.

(Charles Mason MRICS; peer reviewed by) For and on behalf of Carter Jonas LLP Date of Report: 31

st July 2015

Reference: RMW


Valuation Date: 31 July 2015

Appendix 1

Letter of Instruction

Instruction brief to Carter Jonas

HESTON HOUSE SITE, 201 – 209 VICARAGE FARM ROAD, HOUNSLOW, TW5 0AH

You are instructed to provide a Red Book valuation in accordance with the RICS. The report is to

provide a valuation on an existing use basis and on an open market valuation basis for LBH internal

purposes in connection with a bid by the Education Funding Agency for the subject site.

The EFA are looking to acquire the site for the provision of a Free School, rather than for residential

development however, clearly the latter is the driver for value for the site and we therefore need

the sites value to be considered on the basis of a redevelopment for residential purposes.

The valuation concerns a portion of the overall site equating to 1.70 acres(0.69 hectares). The

remaining site is going to be redeveloped for Extra care provision by LBH. The entire site is 3.14 acres

(1.27 hectares). Plans are provided in the attached reports contained in this e-mail.

The intention is now to grant a 125 year ground lease to the EFA. However as the highest value is

expected to be driven by a residential development we would look forward to receiving the valuer’s

initial feedback on how this might affect value. The intention however is not to sell the freehold.

We attach to this e-mail the summary development appraisal provided by GVA dated May 2014, the

DTZ residual valuation dates December 2014 and the JLLS EFA valuation dated April 2015.



Appendix 2

Location Plan

Heston House – site location map



Appendix 3

Site Plan

Heston House – existing LBH ownership shown edged Red and subject land for valuation edged Blue



Appendix 4

Photographs

Car park area

Elevation fronting Vicarage Farm Road

Interlinking part between front/rear blocks

Open landscaped area to front

Comment

Typical communal lounge/dining

Typical corridor view

Typical bedroom

Semi mature trees

Open grass area to side of building



Appendix 5

Development Appraisal

Carter Jonas LLP

Development Appraisal

201-209 Vicarage Farm Road

Hounslow

Report Date: 02 August 2015

Prepared by Richard Waterson

APPRAISAL SUMMARY CARTER JONAS LLP

Summary Appraisal for Phase 1

Currency in £

REVENUE Sales Valuation Units ft² Rate ft²

Private Houses 1 28,000 360.00 Affordable Houses 1 17,000 180.00 Totals 2 45,000

NET REALISATION

OUTLAY

ACQUISITION COSTS Residualised Price (1.70 Acres 1,914,340.04 pAcre) 3,254,378 Stamp Duty 4.00% 130,175 Agent Fee 1.00% 32,544 Legal Fee 0.50% 16,272

CONSTRUCTION COSTS Construction ft² Rate ft² Cost

Private Houses 28,000 ft² 120.00 pf² 3,360,000 Affordable Houses 17,000 ft² 120.00 pf² 2,040,000 Totals 45,000 ft² 5,400,000

Contingency 5.00% 270,000 Demolition 100,000 Statutory/LA 150,000

PROFESSIONAL FEES Architect 2.50% 135,000 Quantity Surveyor 1.50% 81,000 Structural Engineer 1.50% 81,000 Mech./Elec.Engineer 1.00% 54,000 Project Manager 2.00% 108,000 C.D. Manager 1.50% 81,000

MARKETING & LETTING Marketing 50,000

DISPOSAL FEES Sales Agent Fee 1.00% 131,400 Sales Legal Fee 0.50% 65,700

FINANCE Debit Rate 6.000% Credit Rate 0.000% (Nominal) Land 139,145 Construction 20,049 Other 650,337 Total Finance Cost

TOTAL COSTS

PROFIT

File: \\DAT-SQL-03\ARGUS Developer\ProgramData\Data\Heston House (RMW).~wcfx ARGUS Developer Version: 6.00.003 Date: 02/08/2015

APPRAISAL SUMMARY CARTER JONAS LLP Performance Measures

Profit on Cost% 20.00% Profit on GDV% 16.67% Profit on NDV% 16.67%

IRR 20.58%

Profit Erosion (finance rate 6.000%) 3 yrs 1 mth



Unit Price Gross Sales 10,080,000 10,080,000 3,060,000 3,060,000

13,140,000

13,140,000

3,433,369

5,400,000

520,000

540,000

50,000

197,100

809,531

10,950,000

2,190,000
