Crossrail OSD Collaboration and Property Value Capture
Author: Ian Lindsay
Publication Date: 09/07/2018
More than any other rail project in recent times, the commercial realisation of the value potential from property development opportunities above or in the vicinity of Crossrail stations has formed an important part of Crossrail’s core funding proposition. As a consequence, the design of stations, over-station developments (OSD) and the surrounding urban realm was delivered on an integrated basis at a dozen key sites.
This paper explains the approach and lessons from this activity and will be of interest to future programmes which seek to integrate infrastructure with development.
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Background & OSD Obligations/Incentivisation
More than any other rail project in recent times, the commercial realisation of the value potential from property development opportunities above or in the vicinity of Crossrail stations has formed an important part of Crossrail’s core funding proposition. As a consequence, the design of stations, over-station developments (OSD) and the surrounding urban realm was delivered on an integrated basis at a dozen key sites. Development plans with planning consents have been put in place to deliver c.3.5million sq.ft of high quality office, retail and residential space with a target of generating approximately £500million towards the cost of building the railway.
The OSD obligations within the Crossrail Act were to;
- secure planning consents for OSDs within two years of the start of Crossrail works; and
- to use reasonable endeavours to procure completion of development
These obligations were not particularly onerous, nor primarily driven by potential profit, but rather from the need to address the concerns of local authorities during the passage of the Crossrail Bill to ensure that the new central Crossrail stations and over site developments were positioned, designed and delivered to integrate sympathetically with existing localities both in terms of massing and the impact on the urban character of the areas within which the new stations were to be located, so that the project did not leave a ‘gap-tooth’ street-scape.
Objections to the Crossrail Bill were also raised by single site landowners and developers whose property assets were being purchased compulsorily for the project to make way for the proposed new stations and other related Crossrail infrastructure. To address these objections, the Secretary of State entered into ‘collaboration agreements’ with the affected former owners whose entitlement to develop their property assets had been removed. In return for Crossrail taking ownership of their property, these agreements encouraged the landowners to work with Crossrail to seek planning consent for the redevelopment of the OSDs above the new stations and provided the former owners with a right of first refusal to purchase the land back from Crossrail at its enhanced ‘redevelopment’ value.
TfL, as the party in whose name all the land for Crossrail was purchased, owned both the risk and reward returns from the delivery of Crossrail’s OSD development programme. This meant that if the OSD development profit proceeds were less than the financial hurdle set at the time of Crossrail’s funding settlement, TfL would need to make up the shortfall. As a consequence, under the Project Development Agreement between TfL and Crossrail, Crossrail was obligated to:
- optimise OSD value for the benefit of the Crossrail project;
- optimise the balance between delivery costs, OSD proceeds and potential long-term commercial revenues;
- co-ordinate the implementation of the Crossrail project with the implementation of property developments
Crossrail fully committed to these obligations as the project’s core ambition was always to deliver high quality places and spaces associated with the stations and OSDs, both because that was clearly the right thing to do to create a lasting legacy for Londoners and because Crossrail believed that this approach would assist in adding value to the profits from the OSDs.
The physical interface between the stations and the OSDs above them can be complex. This creates a further level of cost, time and risk issues to be managed. The requirements placed upon the Crossrail organisation in general to promote and deliver over-site development offered no real incentive to the Crossrail station delivery teams to actively manage and optimise OSD value from the construction interface, nor were there any penalties for failing to do so such that Crossrail’s OSD obligations were, to all intent and purposes, akin to, “Good faith “, obligations. Project KPIs and financial incentives were really only focused on the core objectives of delivering the stations and railway to time and within the funding envelope made available. Whilst the rationale for this is understandable, if value capture and regeneration benefits are to form a more substantive part of the business case in justifying future infrastructure projects it is suggested that careful thought needs to be given to the incentives on the delivery vehicle to promote value capture, housing delivery and wider area regeneration albeit without losing sight of the fact that the core objective remains delivery of infrastructure as a catalyst for regeneration.
Extent of land taken
Whilst the Crossrail Act specified the extent of the land over which compulsory purchase powers could be used, Crossrail was required to demonstrate for each work package that it would acquire no greater amount of land than reasonably required to deliver the railway project and that the proposed use of compulsory purchase powers was proportionate and in the public interest. From an OSD value-capture point of view the project could have been defined more widely as both a transport and regeneration project, both of which were in the public interest. Consequently, more logical (in development terms) and ultimately slightly larger footprints could have been assembled to support both improved land value capture and maximise the regeneration benefits of the scheme.
The Collaboration Agreements noted above applied to five core sites. These were Bond Street station (both entrances), Tottenham Court Road Eastern ticket hall, Farringdon Western ticket hall and Liverpool Street western ticket hall. The agreements were reached during the passage of the Crossrail Bill as a means of dealing with landowner objections to compulsory acquisition. In outline:
- The Railway Promoter agrees to purchase the land in line with the ‘compulsory purchase compensation code’;
- The Landowner/promoter agree to jointly progress the OSD design so as to secure a planning consent in joint names;
- The Landowner/Developer’s design, planning, construction interface and other costs are covered by a consideration of the lower of 7.5% of total development costs or £6m;
- The Landowner has pre-emption right to buy back the development site at its enhanced market value and on a 125 year lease in return for a 17.5% developer’s priority return on costs with super-profit then shared equally.
In general terms the collaboration agreements worked extremely well in encouraging landowners to co-operate with Crossrail through the design and planning of OSDs. However, the commercial terms originally set were perhaps over-generous considering that the railway had removed a significant ground-condition risk from developers in return for a right of support throughout the term of the lease.
However, by entering into standard development agreement deals which transferred as much of the development risk as possible to developer partners in return for up-front land value only payments, neither developers nor the railway delivery teams were incentivised to work collaboratively in developing the design and construction interface post planning consent and through to construction delivery because there was no sharing in risk/reward beyond this point. Moreover, a one size fits all strategy is not generally the best way to deal with a diverse range of different development opportunities and construction challenges.
Crossrail therefore sought to explore a range of commercial deal types to arrive at those deals which would optimise value in return for slightly greater levels of market risk exposure appropriate to the nature of the different schemes. Variations to the collaboration agreements were sought by both parties as time moved on and this helped Crossrail seek a mix of both capital and revenue returns, to deliver some receipts up-front and some deferred and by working to share elements of risk with developers we have been able to move up the overall value curve. However, the room for negotiation was limited by the pre-existing collaboration agreements. More freedom was available in setting the terms of trade according to TfL’s market and risk appetite on the other seven OSD sites that were not subject to a collaboration agreement. In these cases, instead of completely transferring risk to the developer in a way which creates adversarial public/private relationships there was some opportunity to create relationships where both parties were incentivised to work more collaboratively together to achieve common goals.
It is probably also worth highlighting that in addition to Crossrail’s directly delivered OSD programme, value capture for the project was also delivered through Canary Wharf Group and Berkeley Homes building the Canary Wharf and Woolwich Stations respectively for the project at their own cost and risk in return for securing a Crossrail station directly serving their existing estates and the added value from undertaking their own development above the station boxes which they had delivered. On this basis, Canary Wharf was the first Crossrail station to start construction and the first to complete and, as with the benefit of an integrated OSD design and construction package they were able to deliver 97,000 sq.ft of retail space in 17 new units alongside a new public garden on the four storeys above the station and to open the development on 1 May 2015, some three and a half years ahead of the station itself commencing operations.
A station at Woolwich was initially proposed at pre-authorisation development stage but omitted from the Crossrail Bill for rail operational reasons. The reasoning was revisited in light of petitions to reinstate the station but the additional costs were an issue. Berkeley Homes then joined forces with the local Council to present proposals to fund a station and the government agreed to this on the basis of contributing their land and procuring construction of a cut and cover station box to Crossrail’s specification via a Station box deed. This deed obliged Berkeley to construct the station box at its own risk under a licence to occupy the site and with temporary works to be provided by the developer to enable the railway construction to proceed unimpeded. To facilitate the costs of the station box the developer secured agreement from the local planning authority for the intensification of development on over-station/ adjacent land and some 1,200 homes were completed and occupied above the new Woolwich station again in advance of the station becoming operational.
In a similar manner to the deal at Canary Wharf there was a specified timetable for developers to undertake the station work and provide access to Crossrail’s contractors so that the tunnel boring machines were able to pass through the box during the course of the developer’s works. Both Canary Wharf Group and Berkeley Homes had to sign up to infrastructure protection provisions to protect the railway during its construction and operation alongside rights of approval over all designers, contractors and specialist suppliers used by the developer. There were also provisions for the remedy of failures or default, such as failure to meet the practical completion date or giving access to tunnelling contractors as well as the final completion and handover date. The value of these two deals to Crossrail was estimated as at least a further £300m on top of the £500m from Crossrail’s own OSDs, and there are also significant benefits to the project in securing land and reducing construction risk exposure.
Since linking station development, at least to the point of fit out, with the Over-site development can be sensible from an engineering perspective, direct procurement of the Finance and Build approach could be evaluated for future development opportunities on successor Projects. There is evidence of such contracts being used successfully elsewhere in the world, e.g. Sydney Metro at Victoria Cross and this offers another potential value capture solution without the cost of interface between the station and OSD. It could also allow for better contractor incentivisation to feature in the procurement of principal contractors for OSD sites thereby optimising value from actively managing the interface and timescales for handover to OSD developers and driving efficiencies from integrated planning of station and OSD services as well as removing inefficiencies and discrepancies between an NEC contract for the station and JCT contract for the OSD.
From a place-making point of view, Crossrail set out to make the most of its impact on London’s built environment in a positive way from the outset. Rather than just to ‘repair’ the street-scape so that we did not leave a ‘gap-tooth’ above our stations, there was also a desire to maximise the impact from having two station ticket halls at most of the key central London stations. Leading architects were therefore procured to produce bespoke designs for both the stations and OSDs which reflect the very different character of the individual places and communities that they will serve and to complement our essentially uniform but high-quality and instantly recognisable underground designs that will be a signature of the Elizabeth line. Recognising the importance of design, all of Crossrail’s OSDs and the urban realm designs were reviewed by and indeed suggestions for improvement taken on board from panels of experts: in the central section of Crossrail reviews on the OSDs and urban realm were carried out by the Commission for Architecture and the Built Environment (CABE) and in outer London by Urban Design London.
Turning specifically to the urban realm, our aim here has been to provide the highest quality of public space and interchange for station users in a way that also maximises the regeneration impacts of the new railway by spreading urban realm improvements as far as possible beyond the station entrances. On this basis, we have been deliberately ambitious in designing for a wider area than Crossrail itself was funded to deliver. No other railway project in this country has included a programme of improvements as extensive as Crossrail’s. The areas outside stations were designed to ease people on to the next stage of their journey either by bike, foot, bus or taxi; as well as being attractive and pleasant public spaces to spend time in. The key principles for the designs were agreed in 2010 with our partners, including Transport for London and the local authorities on the Crossrail route. The designs aim to be safe, secure, attractive, adaptable and sustainable so their use can change over time; accessible such that where possible they are step-free as well as being legible and free from clutter. Importantly they also aim to retain the identity, diversity and characteristics of local areas.
Urban realm designs were completed for 31 stations which include all 27 stations in London plus four outside London. This represents over 40 improved spaces outside stations and a total of 190,000 sq. m of space. The urban realm designs include 24 new and 12 improved station forecourts, 20 new pedestrian crossings alongside existing improved crossings, 328 new trees, in addition to those already at stations and 1,335 new bike parking spaces. Urban realm designs were commissioned by Crossrail in collaboration with local authorities, Transport for London and, on Crossrail’s surface section, Network Rail. Moreover, the designs were completed in March 2014, some four and a half years in advance of the opening of the railway in order to give Crossrail and its partners the time to bring in additional contributions from Transport for London, developers and local authorities which will stretch some £30m of urban realm investment from Crossrail into the delivery of more than £100m of improvements.
Crossrail’s OSD design also commenced early enough to be able to influence and change station designs where mutually beneficial. This was done in partnership with collaboration agreement partners for the five sites with landowner/developers in situ and for the remaining seven non-collaboration agreement sites Crossrail assumed the role of development manager and enabler. This worked well in the initial stages and Crossrail were even able to capitalize on land agreements with collaboration partners (such as at Bond Street East/Hanover Square) which enabled an improved and more prominent station entrance on the ground plane and a larger OSD floor-plate above the station. However, care needs to be taken for the design development of OSDs and station infrastructure to remain in synchronisation throughout the development life-cycle as managing changes on either side retrospectively can be difficult and costly and impact on the main railway programme.
All of the Crossrail OSDs were based on the creation of a single loadbearing transfer slab and development deck above the station which offered the preferred developer partner as much flexibility as possible in relation to the design of the OSD, subject to compliance with a required load bearing regime. This is preferable to the alternative of providing OSD support on fixed loading points on a station box grid, (i.e. no transfer slab), which limits and predetermines the support and loading arrangements and therefore the developer’s flexibility in relation to the design and layout of the OSD above. The loss of flexibility on the station box grid point loading approach not only potentially limits value capture and choice options between use/asset classes but it also vastly increases the complexity of the interfaces that need to be managed between the station and the OSD (see below). Further, although in some instances the Crossrail station entrances and concourses appear to be integrated within the OSD they are in fact separate operating entities with their own independent access/egress arrangements, utilities and services. This line of physical and operational separation between Station and OSD was a highly desirable outcome for both railway and developers when creating OSD development opportunities.
The impact of noise and vibration (air borne/ground borne/structure borne), on the future OSD and its occupants is a critical consideration that needs to be addressed as early as possible in the design stages. In the early stages of Crossrail a decision was made not to commence detailed design of the rail systems at the same time as the detailed design of the stations. In hindsight this caused serious issues for both the main project and for the OSDs because the potential impacts of noise and vibration on both the OSD and wider station receptors, primarily from tunnel ventilation systems was greater than originally anticipated and additional mitigation measures had to be designed, assured and retro-fitted at significant additional cost..
Interface Control and Infrastructure Protection:
Constructing station boxes to provide for future oversite development requires management of design and construction in respect of the technical interface between station boxes and the OSD structural transfer deck. Developing above railway infrastructure also needs to protect the railway assets, both during construction and in operation. The Crossrail model Development Agreement & Lease (proven via established TfL practice) gave Crossrail/ TfL mostly absolute control over the developer partner on design development approvals from RIBA D through pre-construction, build and to completion. The Technical Interface Parameters (TIP) documents clearly defined the physical & functional interfaces between the station and OSD and were jointly produced/ signed off by the project’s station delivery teams, with any developer proposed change subject to a robust design assurance/ approval process.
Infrastructure protection controls within the development agreement guaranteed safe construction and operation of the railway, with the developer acknowledging that in the event of any conflict on safety and security matters railway interests will prevail. Crossrail and the project’s station delivery teams managed the infrastructure protection role directly on handover of OSD sites to our developer partners during the life of construction. However, the long-term infrastructure protection role will be managed by Transport for London and on this basis the Crossrail property team worked from the earliest stages with TfL Infrastructure Protection engineers to write the necessary controls into the development agreement on a site by site basis, to get their sign-off on the TIP and to the Construction Interface Control Documents (CICDs) which developers were required to prepare, detailing how contractors’ working in close proximity can ensure safe/ efficient implementation of works and station operations. Any design variations proposed by either Crossrail or the developers that might affect the TIPs or CICDs had to be agreed and subject to a change control process as the TIPs and CICDs are binding contractual documents.
To provide security against the development risk, although the developer gets exclusive use of the OSD site on handover, this is under a building licence and the Lease is not granted until the developer has fulfilled their performance obligations. By and large all these issues, whilst difficult to negotiate with developers, proved both acceptable to the market and deliverable in practice. However, construction and development within the rail environment is undoubtedly more complex and presents an increased challenge to developers to manage, with many developers underestimating the extent and complexity of the interface issues to be dealt with. To be successful, experience suggests that the interface works best when developer partners procure rail/ engineering advisers within their own professional teams as this helps both parties to talk the same language and allows developers to understand the timescales and level of information required by the railway engineering design-assurance and safety processes.
Allied to this, the Crossrail experience also highlights the importance of investing in dedicated Interface Managers. At peak Crossrail employed six Interface Managers covering the 12 core sites. The Interface Managers were embedded within our client station-delivery teams to provide a 100% focus on OSD issues whereas previously we had found that Station Project Managers sometimes struggled to juggle OSD priorities alongside their core tasks of delivering station construction on time and within budget. The Interface Manager focus was on getting station and OSD design development and decision-making to proceed in harmony with each other and to manage the infrastructure protection, technical and construction logistics interfaces between the station and OSD schemes, seeking to deliver win/win solutions for both parties. This proved helpful as our Station Project Managers felt they had additional resource to focus on the OSD interface in a way that would protect the station’s interests, leaving them free to get on with building the station. Likewise, the developers had a focal point of contact within the station teams to whom they could address questions and whom they felt represented their interests on site, understood the construction challenges of the both the station and the OSD and were there to help make things happen for them by getting issues addressed within the station teams before they became real problems. In recognition of this benefit a number of the developers were prepared to pay at least a proportion of the Interface Manager costs to ensure they had a consistent resource through the life of their project. In many ways this provided an active interface protection role rather than the traditional passive role as the Interface Managers were there to identify and to solve problems early.
Project/Programme Controls & OSD Handover
A further delivery lesson to highlight would be that the complexity of Crossrail’s OSD and urban realm programmes required significant project and programme management in order to deliver effectively. On that basis the property team established its own Programme Management Organisation (PMO), drawing on the best practice from the central project’s programme controls teams and working closely with programme controls to manage the project and programme interfaces. Having a property-specific PMO enabled us to deliver good quality governance and reporting, effective financial management and analysis, good cost and contract management as well as schedule and risk management and design and interface co-ordination.
The Property PMO particularly came into its own towards the end of the project as key deadlines approached in helping to manage the handover of OSD sites to developers. This proved to be a very complex and time consuming process requiring delivery of as-built drawings, ground movement and station box loading data as well as co-ordination of TIP and CICD documentation. The collation of all the necessary data was again overseen by the Interface managers but their resource was also supplemented by a Handover Co-ordinator who proved invaluable in masterminding the process and co-ordinating the approach. With hindsight more thought could have been given to collating information for handover as we went along and it would almost certainly have been beneficial to start our handover planning at an earlier stage.
There is a growing body of evidence from Crossrail’s own studies and those published by third party property advisors and academics that the railway and associated public realm improvements delivered by Crossrail along its route has had and continues to have a significant impact on property values which have outperformed other areas of London by a considerable margin (perhaps as much as 20 per cent) in the areas up to 1,000m from station entrances. This impact on property values and its associated impact on job creation and revitalisation of locations along the route has also already led to a markedly greater development of new homes, offices and commercial premises than had been anticipated.
The conclusion of GVA’s Property Impact Study for Crossrail in 2012 was that Crossrail would add some 18% to values above the overall market baseline within the Crossrail ‘zones of influence’ up to 1,000m around our stations. On this basis, GVA were able to establish a figure of £5.5 billion as the additional value that Crossrail will add to the property market along the line of route, based on accelerating or unlocking the latent development pipeline within those zones. GVA therefore estimated that Crossrail would facilitate delivery of 57,000 new homes and 3.25m square metres of new commercial space.
However, whilst that was GVAs view back in 2012, when asked to refresh their study in 2017 GVA concluded that Crossrail is set to do rather better than originally thought. Whilst our overall value impact over and above the general property market baseline remains broadly similar at about 19% GVA now estimate that this will deliver some 90,000 new homes and 4.4m sq metres of commercial space by 2021 which would add £10.6billion to property values, and if this is project this forward to 2026 those figures could increase to more than £20billion in value, unlocking the construction of some 180,000 new homes.
The demonstrable success of Crossrail in adding value to the property market in London also highlights the importance of another strand of value-capture, i.e. direct levies on property owners in the areas benefitting from the additional transport capacity provided by Crossrail. The Montague Review (2004) identified that there was strong resistance to upfront contributions from landowners. However, they were less dismissive of increased post opening levies. Necessary legislative changes to the taxation framework could not be agreed upon and so were not developed. Whilst Community Infrastructure Levy (CIL) contributions for Crossrail have been an important means of capturing some value, the gains accruing to property owners in the vicinity of the Elizabeth line suggest that the public sector could have captured more of the value upside. This would seem to represent a wasted funding opportunity which ideally should not be passed up again and Crossrail 2 are now looking at this closely and exploring new value-capture opportunities such as new land value capture charges and the Development Rights Auction Model (DRAM).
 An overview of the high quality OSD and Urban Realm ‘Places & Spaces’ designed by Crossrail is given in the two brochures produced by the project: Places & Spaces: Property Development Book, July 2015; Places & Spaces: Urban Realm Book, July 2015
 Land Value Capture Report, February 2017; https://www.london.gov.uk/sites/default/files/land_value_capture_executive_summary_transport_for_london.pdf
As Land & Property Director at Crossrail 2011-2018, Ian delivered one of the most complex compulsory purchase programmes ever undertaken in the UK, managed the acquired estate and put in place the design, planning and commercial contracts for 3.5m sq.ft of Over-Site development and 190,000 sq.m of public realm improvements. A Chartered Surveyor and property/ infrastructure specialist Ian is now a partner at property advisers Aspire.