Mayor James Palmer won agreement from his Cambridgeshire and Peterborough Combined Authority (CAPCA) to loan a local property developer £4.5m to turn an Ely office block into luxury flats.
The deal, approved by the CAPCA board, will provide some affordable homes for Ely and a potential share of the profits from the re-development.
The deal has been spearheaded by Simon Somerville-Large, managing director and founder of Laragh Homes whose current projects include the Community Land Trust developments at Stretham and Wilburton.
Laragh will pay interest at 3.29 per cent on the loan - the overall projected interest payable is £138,524.
Under the agreed deal Laragh Homes will buy Alexander House in Forehill to deliver 25 new homes to include four affordable homes as part of the conversion of the former building in Ely where tenants include Lucy Frazer MP and which was formerly the local office for the Ely Standard.
A report to the CAPCA board noted: "The loan will be used to buyout the existing funder of the property and complete a rolling conversion programme."
CAPCA says that by providing the loan it will enable four of the units to become affordable flats without any grant being required.
"If the site was funded elsewhere, the developers will have no obligation to supply any affordable housing in the conversion," said the report.
CAPCA says the office complex is "somewhat outdated and difficult to let, having a poor specification.
"There are significant voids in the building at present, and where space is occupied it is on short term leases or licences.
"The intention is that Laragh House Developments Ltd, having already acquired the property, will initiate an office to residential conversion that includes new penthouse suites on the top of the building."
Under the loan terms Laragh will be offered £4.84m for 21 months to undertake the conversion work
The loan will be providing 90 per cent of the capital being required and Laragh House Developments will be providing the 10 per cent of equity from their own resources.
The loan will be drawn down on a 90/10 'side by side' basis.
CAPCA says that the work will entail stripping the property back to the structural frame, inserting new vertical cores and layout appropriate for housing, creating additional penthouse space and balconies, reducing window sizes and ensuring adequate parking.
CAPCA expects repayments of the loan will commence in October 2020 and by the end of February2021 the loan will be paid off.
The loan is being secured against a charge on the land on which the property sits and in addition CAPCA will share 50 per cent of any profit from the scheme up to a maximum total profit sum of £500,000.
In the event of any profit in excess of £500,000, CAPCA will receive 40 per cent of any additional profit achieved.
The loan is conditional upon Laragh House Developments Limited securing planning consent for the creation of the rooftop penthouses and upon providing a valuation once it has the benefit of the planning consent. It needs to have a property worth no less than the notional purchase price or starting value of £2.1m.
CAPCA says: "This opportunity creates and brings into supply 25 homes in a building that comprises under occupied and poorly specified offices".
The deal has been criticised by Cllr Lewis Herbert, leader of Labour-controlled Cambridge City Council.
He said CAPCA had shifted nearly 90 per cent of its £40m revolving housing fund into Ely and East Cambs projects
He said monies allocated included £24.5m into the former RAF homes which was agreed last November but not completed with CAPCA rejecting any review to increase affordable housing provision there.
CAPCA had also agreed £6.5m for the Haddenham community land trust and now nearly £5m for an office block conversion "with big questions about how the deal came about - did Laragh approach CAPCA?"
"And presumably East Cambs Council has their eyes on further CAPCA money for the 500 home Kennett development too," he said.
"Meanwhile, I also exposed that the CAPCA is wasting a significant percentage of £125 million in reserves it currently has which are lying idle when potentially £25m upwards could be revolving funding
"CAPCA is nearly half way through the 2017-2022, five year programme
and has only achieved 143 starts out of on its affordable housing 2000 target to start by March 2022 = seven per cent."
Cllr Herbert said that office to residential conversion under permitted development (not requiring full planning - except at Alexander House for the four extra/penthouse flats) is opposed by organisations such RTPI, RIBA, TCPA and many councils across Britain.
"Alexander House is smaller than the worst ones but it's a 1970s concrete office not designed for housing," he said.
"The 'affordable' housing loan to Laragh is an abuse of CAPCA's affordable housing monies."
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