PlaceEXPO: City Region Investment Strategies: Chrysalis in the Liverpool City Region

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Iain Jenkinson, senior director, GVA; and Mark Bousfield, investment manager, Chrysalis Fund / Igloo

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  • Introduction, thanks for opportunity etc.
    Point of the presentation is to:
    Recap what the fund is about and how it functions
    why the funds was established and how it functions
    Consider the type of projects we thought we would do versus the type of projects we ended up doing
    Run through some of the portfolio and pipeline highlights
    Consider the future funding environment and how the Chrysalis fund can contribute
  • JESSICA (…there’s also a JEREMIE, JASPAR and a JASMINE)
    Broadening the scope of measures supporting sustainable urban investment projects (efficiency & equity objectives)
    An integrated approach to urban investment
    – Long-term economic viability of selected urban projects;
    – Shift from direct grants to financial instruments implemented via intermediary investment vehicles wit the long term aim of establishing revolving financial instruments.
    Growing in significance across EU (15% of cohesion funds in 2014-2020 programme period allocated to such Financial Instruments – up from 5% in current programme). To date Euro1.9bn committed to date (only 30 funds established across Europe)
    JESSICA in Merseyside – What does it look like
    £60m to be committed by December 2015 in urban projects
    We are now reaching financial close to establish a Jessica Fund for Merseyside with our partners - IRL and RBC
    Set for launch early 2012
  • What can Chrysalis invest in?
    Employment generating projects, principally office development (Round 1)
    Target is projects that are viable and cannot get funding or finance due to risk
    Investment can be loan or equity
    Projects must:
    Use investment to finance ERDF eligible costs
    Be viable and likely to repay a state aid compliant return
    Take investment by 31 December 2015
    Meet match funding requirements – invested on same terms as match
    As the fund management team, we are looking to complete due diligence quickly
  • Scheme has been around for 10 years but was flailing.
    We have lent to rescue its core elements and unlock up to £40 million of further investment.
    Location is attractive for future office use.
  • Bring out the need for coordination
    Our speed enabled the deal to proceed and unlocked grant financing
  • Re. market upswing:
    Improving sentiment across north west
    Re. More acronyms:
    Chrysalis I, II; GPF; RGF; MDF
    Critical point is that each has different requirements and restrictions
    Re. less grant:
    Comparison of grant available 2014-2020 versus previous period
    Outcome is that coordination and the ability to structure creative yet sound financial deals will be even more critical in the coming period than in the last, esp. if we are to deliver on the headline priorities for the city region.
  • Introduction, thanks for opportunity etc.
    Point of the presentation is to:
    Recap what the fund is about and how it functions
    why the funds was established and how it functions
    Consider the type of projects we thought we would do versus the type of projects we ended up doing
    Run through some of the portfolio and pipeline highlights
    Consider the future funding environment and how the Chrysalis fund can contribute
  • PlaceEXPO: City Region Investment Strategies: Chrysalis in the Liverpool City Region

    1. 1. Chrysalis in the Liverpool City Region Presentation to placeEXPO: Looking back, looking forward 17 June 2014
    2. 2. Introducing Chrysalis – a JESSICA fund • Igloo Regeneration Ltd, GVA and Royal Bank of Canada Capital Markets • GVA – investment advisers • Igloo – fund managers • RBC – credit advisers • Appointed by North West Urban Investment Fund Board to manage the Liverpool City Region Urban Development Fund (March 2012) • Chrysalis Fund (http://www.chrysalisfund.co.uk) • Private fund management team with strong public sector governance • Deputy Leader Wirral / Regeneration Portfolio Holder Liverpool Council Directors of Regeneration at St. Helens, Wirral and Liverpool
    3. 3. JESSICA - “not the only show in town”
    4. 4. Project JESSICA in North West England (1) • JESSICA (Joint European Support for Sustainable Investment in City Areas) • Chrysalis is Merseyside’s JESSICA Urban Development Fund (UDF) • JESSICA invests into a range of private and public projects, via debt or equity • Targets projects in the development or construction phase to create new floorspace and jobs • It is a financial (engineering) instrument that makes repayable investments • Not grant or ‘gap funding’ and once invested is returned and invested again • Investment Policy is prescribed by European Regional Development Fund Programme 2007-2014 – essentially Offices, Industrial, Warehousing
    5. 5. Project JESSICA in North West England (2) • Established for a 10 year period with all funds to be committed by December 2014 • Initial capital of £34m contingent loans made available for on-lending to projects • UDF invest upto 50% in a project, alongside other sources of match funding • Can be private or public sector match • Rationale is to focus on market failures inherent in urban regeneration • Demand side (project developers that carry out urban regeneration projects) • Supply side (investors and lenders who provide finance) • Not seeking to replace or crowd-out private investment but to intervene where market failure exists – UDFs ESTABLISHED TO TAKE GREATER RISK
    6. 6. Project JESSICA in North West – Summary • Merseyside has its own dedicated Urban Development Fund • £34m ‘seedcorn’ to invest in urban projects by December 2014 • Recycles and allows public funds to be used again (and again!) • Opportunity to grow fund size and extend scope of eligible investment
    7. 7. Eligible Activities • Site clearance and remediation • Development of site specific infrastructure and site servicing • Including site specific IT/broadband, utilities, energy infrastructure, site specific transport facilities (eg a connecting road to a site) • Construction of new buildings and/or renovation of existing ones, including landscaping and public realm works
    8. 8. Eligible Expenditure • Land acquisition • Cost of purchasing land not to exceed 10% • Building acquisition • Cost of acquiring a building is there is a direct link between the purchase and the objectives of the project • Site investigation and preparation • Cost of preparing the land for development, including the cost of site investigation, remediation, reclamation, decontamination and demolition and preparation • Building and construction • External and internal refurbishment and conversation of existing buildings, new build premises, provision of services (eg infrastructure) and landscaping • Plant and machinery • Tangible fixed asset used for purpose of providing a service for the project • Fees • Fees and salaries for design and supervision not to exceed 12.5%
    9. 9. How it works in practice
    10. 10. State Aid Exemption Notice (@ Project Level) • Chrysalis can invest in a number of commercial and sub-commercial means: • Senior loans, at or below market rates • Subordinated loans • Equity • Upside risk sharing: preferential returns • Upside risk sharing: priority returns • Upside risk sharing: timing of investment • Downside risk sharing: first loss position • Chrysalis can combined repayable investments with grant fund • Fair Rates of Return must be established and verified regardless of condition
    11. 11. State Aid Exemption Notice (@ UDF Level) • Chrysalis can receive further public and private sector investment into the UDF • Investment is made in return for a share of potential ownership in the UDF • SAE Notice allows for private investment to be made on non-pari passu terms with the public funds in the UDF, which provides an advantage to the private investors compared to normal market conditions
    12. 12. Chrysalis - DELIVERING RESULTS
    13. 13. Completing a stalled development: Watson House & Central Village Central Village is part of the city’s plan to “stretch” the city centre – but development has stalled twice Chrysalis loans are for: 1.completion of the Lewis’s department store 2.renovation & extension of Watson House The outcome will be: -High quality public realm -New Grade A office space -Realisation of the City SIF
    14. 14. Supporting the Visitor Economy: Arena and Conference Centre Extension • 8,100 square metre extension of Echo arena and conference centre on the King’s Dock • Development cost of £40 million • Chrysalis loan of £8 million to support construction
    15. 15. Supporting inward investment ACL – 89-90 Duke Street, Liverpool • 5,575 square metre redevelopment of 2 buildings • Development cost of £10 million • Chrysalis loan of £1.4 million to support construction • State Aid Exemption route
    16. 16. • Chrysalis loan of £3.5 million • Total investment programme of £20 million • Approximately 160 jobs • Market leading technology • Support for the city region’s green economy credentials Supporting foreign direct investment: Tratos, Knowsley Entrepreneurial Italian company seeking expansion amidst complex financing arrangements
    17. 17. In the Pipeline: Liverpool Life Sciences Accelerator • Proven need to retain life sciences companies • 7,300 square metres laboratory, write-up, office and networking space to companies in the life sciences sector • To be built on the Royal Liverpool hospital site • Dedicated incubation manager to provide accelerator function to new SMEs • Project cost of £20m • Chrysalis senior loan of £9m Delivering on the Knowledge Quarter’s aspirations
    18. 18. Enabling growth industries: Hornhouse Lane, Knowsley • Latent demand for high quality space – esp. with arrival of the superport • 10,000 square metre speculative warehouse on Knowsley Industrial Estate • £6 million project cost, Chrysalis loan of £2.4m Unlocking latent demand: logistics & warehousing
    19. 19. Looking forward: Need for coordination & creativity COORDINATION, CREATIVITY & COMMERCIAL RIGOUR
    20. 20. The Future…? • Pooling of public funds to attract private capital leverage • Northwest started an experiment of pooled funds for place-based integrated economic development
    21. 21. Chrysalis in the Liverpool City Region Presentation to placeEXPO: Looking back, looking forward 17 June 2014

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