Partnership Finance October 2010
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Partnership Finance October 2010

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Partnership Finance October 2010 Partnership Finance October 2010 Presentation Transcript

  • Partnership Finance Chris Cook Lockerbie 5 October 2010
  • There are two conventional ways of raising finance: credit and investment 16/06/10
  • Investment is either through a Limited Company 16/06/10 View slide
  • A 19 th Century legal dinosaur 16/06/10 View slide
  • Or loans secured by legal claims eg mortgages 16/06/10
  • Two conflicting claims over the same assets 16/06/10
  • But there’s a new creature out there 16/06/10
  • The 21 st Century Limited Liability Partnership (LLP) 16/06/10
  • An LLP is a corporate body with limited liability 16/06/10
  • ...and...errrr...that’s it! 16/06/10
  • As far as the Tax Man is concerned it is a Partnership 16/06/10
  • It’s an 'Open' Corporate where we can work with each other 16/06/10
  • Even without a written agreement 16/06/10
  • LLPs are now in pervasive use for purposes never intended... 09/03/10
  • ...even in the Public Sector, where Glasgow has five municipal LLPs 09/03/10
  • Hilton Deal 2002 Capital Partnership LLP 10 UK Hotels Gross Revenues Hilton Group Capital User Consortium LLP Capital Provider Bank Property Developer Hotel Specialist % % % % %
  • Capital Partnership Custodian Investors Users % % £ 16/06/10 Managers
  • Equity Shares - % age shares in revenues or production... 16/06/10
  • Units - redeemable in production 16/06/10
  • Example: “The Art of Flirting” – a film incorporated as an LLP 16/06/10
  • The actors received “nth’s” of the gross revenues 16/06/10
  • I got 5%...and the producer the rest 16/06/10
  • But we needed lights, cameras, pizza, coffee 16/06/10
  • Two Capital Partners invested £ for 20% of revenues 16/06/10
  • If there are any 16/06/10
  • Art of Flirting LLP Custodian Financial Capital (Investors) Viewers % % £ 16/06/10 Human Capital (Actors, Producer, Me)
  • Everyone was on the same side 16/06/10
  • Example: Albion Trust...a charity 16/06/10
  • They provide affordable office space for social enterprises 16/06/10
  • Due to demand they bought a disused church next door 16/06/10
  • ...and planned a £4m development 16/06/10
  • But if they borrow, the rents will be unaffordable 16/06/10
  • Solution - an Albion Partnership? Custodian Investors Tenants % % £ 16/06/10 Managers
  • Conventional property development is a transaction model: developer as middleman Developer Property Buyer £ £ Property Buyer £ 16/06/10 Land Owner
  • Borrow, Buy, Build and B...er Off... 16/06/10
  • Financed by Equity (ownership) and Debt (from credit institutions) 16/06/10
  • Community Partnership – a new approach to financing and funding 16/06/10
  • Financing ...short term, high risk development finance for new assets 16/06/10
  • Funding ...long term, low risk finance for newly completed or existing assets 16/06/10
  • Development Financing Land held by/transferred to a Custodian Land Custodian 16/06/10
  • Land Owner becomes an Investor Land Land Owner Custodian Land Value 16/06/10
  • Council invests the value of planning permission Land Council Custodian Value of Planning permission 16/06/10
  • Contractors invest at least the profit margin Land Contractors Custodian Profit Margin 16/06/10
  • Risk-Takers provide £ to pay Contractors’ agreed costs Land Risk-Takers Custodian £ 16/06/10
  • Developer invests “Intellectual Capital” of concept and services Land Investors Land-owner, Council, Contractors, Risk Takers Developer Community plus help Custodian Value Value 16/06/10
  • Result – Community Land Partnership Custodian Investors Occupiers % % Rental 16/06/10 Managers
  • Investors may keep Units for their own pension... 16/06/10
  • ...or sell them to Investors or Occupiers who wish to invest in their own homes 16/06/10
  • Occupiers maintaining the property themselves may receive “Sweat Equity” 16/06/10
  • Everyone has a stake in the outcome.... 16/06/10
  • ....with an interest in high quality, energy efficient housing .... 16/06/10
  • ....because this lowers the cost of occupation over time .... 16/06/10
  • ....which makes the Rental value higher and makes Units more valuable 16/06/10
  • So we go from a transaction model... Developer Property Buyer £ £ Property Buyer £ 16/06/10 Land Owner
  • ...to a service provider model where land is owned by a custodian or steward 16/06/10
  • Community partnerships are not a magic bullet 16/06/10
  • Conventional finance requires binding contracts 16/06/10
  • Partnership finance requires consensual agreement 16/06/10
  • But there may be no magnetism 16/06/10
  • Communities may find they have the wrong partner 16/06/10
  • Sometimes partners fall out 16/06/10
  • A Community Partnership is not an Organisation 16/06/10
  • It does not own anything, do anything, employ anyone, or contract with anyone 16/06/10
  • It is simply a framework within which the stakeholders self organise 16/06/10
  • ...with a mutual interest in developing land sustainably and affordably. 16/06/10
  • Rental Pool creates new options for funding and tenure 16/06/10
  • Co-ownership – of Investor and Occupier 16/06/10
  • Unitisation – simple but radical funding 16/06/10
  • Energy Pool: Community Mega Watts
  • Energy Pool Custodian Investor Community Energy Energy Energy Manager
  • Manager receives %age of production
  • Supplier may invest equipment & materials: must invest agreed % profit
  • Investors provide development Capital by purchasing redeemable Units
  • Outcome: turbine funded by selling part of Energy Pool of future production. 05/04/10
  • Nega Watt e nergy savings - the cheapest energy of all – may be simply financed… 09/03/10
  • … energy loans in KwH may be repaid via utility bills out of energy saved 09/03/10
  • £5k interest-free energy loan = 100 Units of 1 Mega Watt Hour sold @ £50/MWh 09/03/10
  • Or 10,000 Units of 10 Kilo Watt Hours @ 50p per Unit 09/03/10
  • Reduced energy bill paid to power supplier for energy consumed 09/03/10
  • Energy loan repaid through buying Units from the Pool at the market price 09/03/10
  • Energy Pool offers a new approach to energy financing
  • “ If you want to keep a cow healthy, you don’t regulate what comes out of it……”
  • “…… you regulate what goes in….”
  • An Energy Pool enables a Carbon currency based upon the intrinsic value of energy…
  • ..rather than a market in value-less Units of CO2 emissions, imposed by governments …
  • Thank You 16/06/10