Olympics to come in under budget - shock

Peter Bill
27 Nov 2009

After a spin round the Olympic park with David Higgins, then 10 minutes quizzing the chief executive of the Olympic Delivery Authority (ODA) in his Canary Wharf office, the only question it felt uncomfortable to ask was: how do you like the sound of Sir David Higgins?

For the man in charge of building the Games will surely deserve a knighthood if he and his 450-strong team finish the £9.3 billion project with, what the frank Australian would call, “no major stuff-ups”.

So far, so good, as the absence of recent stuff-up news testifies. In fact the detailed answers the lean, 54-year-old gave to a series of questions, leads to the conclusion that the Games will come in comfortably under the official budget, and slightly ahead of the official completion date.

But, for now, the fast-talking civil engineer, who ran the Government's regeneration agency, English Partnerships, before taking the Olympic job in 2006, sticks to the official “on time and on budget” line.

That's easy to believe. The 670-acre park is seething with activity. “We now have 7000 workers on site and are spending £ 130 million a month,” says Higgins, who joined English Partnerships in 2003 after 22 years with the giant Australian developer Lend Lease, the last eight as chief executive.

The architectural star of the show won't be the cut-price stadium costing £584 million.

Most eyes will be drawn to the expensive aquatics centre, which is costing £244 million, thanks to the minimal number of straight lines drawn by architect Zaha Hadid.

Higgins will be quietly praying that water leaks neither in, nor out, of a building covered with a wavy roof and surrounded by curved walls. But that will be a small problem compared with his jump-starting the two huge projects stalled by the credit crunch.

Private cash was supposed to help fund the £1 billion Olympic Village and the £350 million media centre. That never happened.

The 1.3 million square foot media centre is being paid for out of the £2 billion contingency fund. It will be handed over gratis to the Olympic legacy body. Just as well. Rented out at between £5 and £10 per square foot the sheds, will be worth no more than £100 million to £200 million.

But there is better news on the Olympic village after a plan for Higgins's old firm Lend Lease to take a stake in the 2800 units foundered: for the ODA has just figured out that the eight-storey flats arrayed in 11 quadrangles are worth £750 million to £850 million — about £200 million less than the cost.

But there is also enough spare land to build 800 to 1000 more homes in the village. Enough to recoup the whole £1 billion, maybe? But who wants the job? Well, an hour after last week's interview, Higgins gave a spin round the site to a big property company — one of a number now taking an interest in managing and developing the village — and paying for the privilege.

Games village could still get its cash back and should woo the buy-to-let market

Can the Olympic Delivery Authority recoup the £1 billion cost of building the Olympic Village? Officially, no.

ODA chief executive David Higgins says internal estimates show the 1400 private flats may fetch £500 million and the 1400 subsidised units £278 million.

That leaves a shortfall of some £220 million.

But an additional 800 to 1000 homes can be built on the site thanks to a cutback in the original number of units planned to house the 17,000 athletes.

It is hard to say how much profit these extra flats will contribute to a project that may not finish until 2020. But it could be tens of millions. 

The ODA has one other factor that may also work in its favour: there is a growing desire among large property companies and fund managers to buy up and rent out new flats.

Giant United States residential management companies like Seattle-based Pinnacle, which manages over 175,000 units in America and the LeFrak Organisation, one of the largest private real estate companies in the US, have been nosing around the UK for a year or so now.

Last year Pinnacle announced the setting up of a £1 billion residential fund in association with Aviva and agents CBRE. Not much has been heard since. LeFrak has ties to Legal & General. But, again, not much has been heard lately. Then there is Higgins's former employer Lend Lease, who very nearly did a village deal before the credit crunch. It is said to be still interested.

But, it's early days. Higgins said they won't be signing up a partner for while. But he wants someone to act as more than janitor. “The long-term legacy of a village, where people want to live, mean it must be managed by someone with a stake in the business,” he said.

Event should only cost £8.5bn

The Olympic Delivery Authority only gets to spend £8.1 billion from the £9.3 billion budget.

The remaining £1.2 billion goes mostly on security (£838 million) and supporting elite athletes (£290 million).

But the ODA did not get £8.1 billion to spend all at once — £2 billion was reserved for contingencies.

Which is just as well.

The credit crunch meant no private funding could be found for the Olympic Village and the Media Centre.

Paying the £1.4 billion cost of these ventures entirely from the public purse has helped to push up the original £6.1 billion “base budget” to a current anticipated final cost of £7.2 billion.

That is still £800 million below the ODA's original budget figure of £8.1 billion. But even this £7.2 billion figure includes a contingency sum of £685 million.

What does all this mean for the £9.3 billion headline figure?

It depends a bit on the £838 million security budget — which also includes a £238 million contingency.

At a guess, the Olympics will cost no more than £8.5 billion — and maybe a bit less.

Mount Street to get makeover a London Mayor could be proud of…

Boris Johnson will be pleased to learn that plans to spruce up Mount Street in Mayfair will begin in January, two years after a deal was agreed between Westminster council and the Grosvenor Estate, the predominant landlord.

It will delight the Mayor because last week he announced a “better streets” plan. And what better street to stroll down than Mount Street — especially if you have a few bob to spend.

In the last year or so, Grosvenor has leased shops to expensive brands such as luggage-maker Maison Goyard, and fashion brands such as Carolina Herrera and Azzaro. It may be expensive; but so is the rent they pay. French bed-linen firm D Porthault has just signed a lease on 1800 square feet at number 89. The shop that refuses to sell Egyptian cotton sheets with anything less than 406-threads to the inch will be paying £160,000 a year when they open in the Spring.