Regeneration seminar 2016, Birmingham - creating a place

Creating a place
February 2016

© MONTAGU EVANS LLP REGENERATION SEMINAR – FEBRUARY 2016
Development ConsultancyDevelopment Consultancy
CREATING A PLACE
Property Considerations for Bringing Schemes to
Market
Simon Hope & Kevin White

INTRODUCTION
 Considerations in the formative stages
 Construction phase is the tip of the regeneration
iceberg
 Public/Partnership is at the heart of delivery
 Increasing innovation as councils and developers
juggle complex challenges

“Dear Chief Executive,
Happy New Year and all that.
I would like to be more optimistic about the year ahead but the CSR just before Christmas
confirmed what we probably already knew: 2016 is the year that local government has to actually
start transforming itself, or face extinction”
BACKGROUND CONTEXT

“With government grants dwindling every year councils must
find other ways to keep the money coming in to sustain
quality public services. We are determined to maintain our
services to a high standard and keep council tax low. To do
that we must make the most of our resources.”
East Hants DC’s Deputy Leader, Cllr Richard Millard

A CHALLENGING AND CHANGING PICTURE
 Local Government Finance Pressures
 But a need to stimulate economic activity
 Enabling investment, sustainable environments
 Corporate objectives requiring greater self sufficiency
 Need to generate investment returns

A CHANGING WORLD AS…….
COUNCILS BECOME THE DEVELOPER/INVESTOR
 Buying assets
 Strategic land acquisition
 Establishing Local Housing Companies
 PRS investment – promoting and direct development
 Infrastructure investment – inc energy providers

Approaches to Delivery
INFLUENCEANDINTERVENTION
As Planning Authority
Land Assembly Facilitator
Market Site / Select Developer
As Master Developer
Undertake Direct Development

DELIVERY RELIES ON A POTENT COCKTAIL
Political will …..and
sometimes courage
to stay the course!
Appropriate
resourcing
Effective
public/private
partnership
Clear objectives
and a robust
business plan

EARLY CONSIDERATIONS
 Complex schemes delivered via well structured partnerships
 Overcoming economic cycles
 Pre-development phase can be time consuming
Thorough preparation is key

PREPARATION 1 - PRE-MARKETING CONSIDERATIONS
 Establish the Business Case - corporate support
 Understand opportunities/constraints/target market
 Soft market testing to inform route to market
 Review procurement options
 Progress Partner Selection
Marketing = Competitive Tension = Best Terms

PREPARATION 2 - VIABILITY TESTING
 Understand the risk profile
 Viability “tools”
 Consider Partner(s)’ risk appetite - de-risk if you can!
 Meet the market with clarity on commitments & deliverability

POTENTIAL PITFALLS
 Procurement
 Resources Constraints
 Marginal Viability
 Political Uncertainty

POTENTIAL PITFALLS
AVOIDANCE MEASURES
 Create “Unstoppable Motion” - Avoid drift
 The right partner for the right scheme
 Share ideas and referrals
 You will have your own examples too….

PROCUREMENT
 Best procurement route?
 Added value = detailed design & quality implementation
 Consider streamlined competitions
 Developer concerns of OJEU – use soft market testing to mitigate
 OJEU vs disposal of land
 ‘Exclusive rights’ negotiations or established frameworks or panels

WHAT ARE PARTNERS LOOKING FOR IN A COUNCIL?
WHAT ARE COUNCILS LOOKING FOR IN A PARTNER?

CASE STUDIES
HEREFORD & NEWTON ABBOT

CASE STUDY – HEREFORD
 Award winning retail/leisure scheme
 Innovate forward funding needed
 Economic downturn forced review
 Extensive pre development work

CASE STUDY – NEWTON ABBOT
 Council pro-active, direct investor
 Twin benefits
 Masterplan/infrastructure planning attracts
occupiers and enables investment
 Phased delivery planning

CREATING A PLACE READY FOR
HS2
MATT O’NEILL MRICS
MAJOR PROJECTS MANAGER

HEART OF THE NORTHERN POWERHOUSE
5.3 times more people
employed in science
R&D than UK average
Over 224,000 cars
are owned in Cheshire
East, highest in NW
Fairerpower – the first
LA energy partnership
since 1948
Alderley Park BioHub
has attracted 125 new
companies + 500 jobs
Average household
income of £33k is
16% above UK average
Over 18,500 SMEs
in Cheshire East
2014
640 new
affordable homes
completed 2014/5
Visitor economy is
worth over £807m and
supports 10,800 jobs
Life expectancy is
80.4 for men
and 83.6 for women

PRIORITIES FOR GROWTH
Priority
01
Cheshire High Growth City
Priority
02
Priority
03
High Growth Sectors
High Quality Places

 Until the 1830’s Crewe was only a small hamlet.
 With the evolution of the railway it was identified as the best location for a hub station with
railway lines connecting it to England’s major cities.
 It was planned out by Joseph Locke – a protégé of George Stephenson - in 1843.
 Crewe evolved as the key location for the rail industry and then the car industry – home to
Rolls Royce and, more recently Bentley Motors.
 It’s connectivity has been enhanced over the years – by both rail and road, and it is the
largest town in South Cheshire with a population of over 70,000
 Business has grown too – in the rail, engineering, manufacturing, logistics and call centre
industries in particular.
INTRODUCTION

 Crewe is on the cusp of its biggest transformation since the town was created as the
hub of the region’s Victorian railway network.
 Crewe has been selected as the HS2 North-West Gateway Hub station, which will
have a transformational long-term impact, both for the wider Northern Gateway
Development Zone, but more specifically for Crewe itself.
 But the Council is keen to act now for the town centre, reflecting the new role that
town centres need to establish and the current scale of growth and investment that
Crewe is attracting.
 Much more needs to be done, and the Council wants to work with those who have
existing interests and developers to accelerate transformational change.
INTRODUCTION

TRANSFORMING CREWE
BENTLEY
EXPANSION
BASFORD WEST
SPINE ROAD
CREWE STATION
CREWE GREEN
LINK ROAD
M6 J16 & J17
IMPROVEMENTS
A500 DUALLING ON M6
APPROACH

TRANSFORMING CREWE TOWN CENTRE CREWE LIFESTYLE
CENTRE
• £15m Investment by
Cheshire East Council
• Located between Christ Church and Vernon
Way
• Open in Spring 2016

TRANSFORMING CREWE TOWN CENTRE CREWE UNIVERSITY
TECHNICAL COLLEGE
• £10.6m Government investment
• Located on north side of West Street
• Engineering & Design focus
• Opens in September 2016

 Over ½ million people living within a 30 minute drive-time.
 Over 130,000 ‘Affluent Achievers’ (3% > GB average).
 Relatively limited local retail / leisure competition.
 Strong existing 360o rail connectivity across UK, including 5 trains per
hour to London, 4 to Manchester and 3 to Liverpool.
 Crewe ranks as the 3rd best residential location in the UK (Property Week
/ CACI 2015), taking account of the area’s quality of life, employment
levels, property affordability, local amenities, education and internet
connectivity.
 Focal point for housing growth in the Council’s draft Local Plan Strategy.
CREWE’S OPPORTUNITY

Land Banking by developers and speculators
Pre HS2 inertia to 2027
Not defining its offer for growth
Planning policy framework- Local Plan
Not resolving infrastructure requirements
Short term development solutions
Town Centre deterioration, economic flight
Retention of young people and workers
CREWE’S THREATS

 The Council has developed a Regeneration Framework –to
stimulate new investment by bringing key vacant sites
back into use, intensifying use of underperforming sites
and utilising the Council’s assets.
 A key aspect is to diversify uses in the town centre, to
include more leisure and residential uses in particular.
 It has been consulted upon with local businesses and
residents, and was approved by Cabinet in August 2015.
 Early influences include the UTC location and the basis of
our acquisition of the Royal Arcade site.
TOWN CENTRE REGENERATION
DELIVERY FRAMEWORK

• In May 2015 the Council invested £6m in
acquiring the 1.85 ha (4.6 acre) Royal
Arcade site in the heart of the town centre.
• It includes Crewe bus station and 26 retail
units along Queensway and Victoria Street,
on the basis of a net yield of 7%.
ROYAL ARCADE SITE

ROYAL ARCADE SITE
BUS STATION
DELAMERE
HOUSE
BHS
Queensway
Delamere Street
MARKET
SQUARE

The desire for a transformational scheme is the over-riding priority, however profit
share and JV agreements are also important.
Options for redevelopment could include:
- a new larger cinema
- other leisure uses
- restaurants, cafes and bars
- hotel
- apartments
Royal Arcade site
- offices
- public space
- retail units
- car parking
- a remodelled bus interchange

T
The Council :
• Has sought developer interest in leading the redevelopment of the Royal Arcade site, through issuing
a PIN for expressions of interest.
• And has consulted with residents and businesses on their views and aspirations for the town centre
and the Royal Arcade site in particular. The responses from the survey and events endorse the
Council’s approach:
– 94% support plans for more investment and regeneration in Crewe town centre
– 79% agree with the proposed Vision.
– Strongest support was for “investment in the town centre by bringing vacant sites back into use, intensifying the
use of underperforming sites and utilising Cheshire East Council’s assets”.
• We are now in the process of procuring a development partner via competitive dialogue to redevelop
part or all of the Royal Arcade site.
Our approach

• Overriding Political support to stimulate Town Centre Regeneration & Invest,
defining level of return
• The Council has developed a Regeneration Framework to govern the development of
the town centre
• Taken on board early legal advice in developing the correct type of procurement-
Completive Dialogue
• Undertaken soft marketing testing with developers & the public to inform
development
• Sought to act early to redefine the Town Centre pre HS2
• Early strategic acquisition key & not the last…..
Conclusion

THANK YOU
MATT.O’NEILL@CHESHIREEAST.GOV.UK

Regeneration projects
Stephen Matthew

• financial pressures - cuts, service delivery pressure, reduced grants
• stimulating economic activity – enabling investment, sustainable
environments
• generating investment returns - financial innovation, new income
sources
• corporate objectives- greater self sufficiency?
Drivers

Councils as enabler / investor
• buying assets e.g. shopping centres
• strategic land acquisition
• establishing local housing companies
• PRS investment – promoting and direct development
• infrastructure investment
• energy providers

0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
Housingcompletions,England
Private enterprise Housing associations Local authorities Housing need
House building
Source: DCLG, Savills 31 December 2014. Department for Communities and Local Government.

At the start (legal)
• land assembly – who owns what? CPO?
• market appetite
• procurement route – or not, frameworks, procedure, timings
• planning context
• risk appetite of LA
• enabling works?
• finding – inc’ loans and grants. State aid?
• other statutory steps – highways, railway, allotments, etc.

Direct delivery
LA
Funder(s)
ContractorsDevCo
Occupier, etc – or sale out to an investor?
Wholly owned, CLS? Construction

Corporate JV
LA Developer
JV Co (or LLP)
Bank Other Finance
50% shares (nominal)
Investment of cash
for loan stock
50% shares (nominal)
Investment of land
for loan stock

Development
Subsidiary #2
Development
Subsidiary #1
Housing to
Rent
Subsidiary
Commercial
Investment
Subsidiary
Programme
Management
Subsidiary
SUB-
DEVELOPER
[TBC]
BUILDER
[TBC]
BUILDER
[TBC]
Strategic Funding
Agreement
FUNDER
[TBC]
Development & Sale
Agreement(s)
Option Agreement(s)
LLP
LA PSP
Management
Services Agreement
Housing Asset
Management
Commercial
Asset
Management
Development
Management
PARTNERPARTNER
Partnership
Agreement
Members Agreement

Pros and cons
Development Agreement Direct Delivery JV
• Well developed
• Contractual control
• Risk allocation is clear
• Overage terms
• Profits retained
• Control over delivery
• Control over timing
• Accountability
• Governance – shared
• Risks and rewards shared
• Flexible
• Lack of transparency
• No true involvement in
decision-making
• Difficult to vary
• Rewards shared
• Development risk is retained
• Expertise required?
• Blurred accountability?
• Set-up costs
• Operating costs (inc’
management of JV)
• Complexity
• Blurred accountability?

Procurement – to OJEU or not

Procurement issues
• land sale – or not?
• market appetite – time and money
• which route – RP, CD, CPN?
• documentation (HoTs?)
• framing the selection and evaluation criteria
• dialogue – on what?
• timing – factors
• soft market testing

Typical legal ‘issues’
CPs Land Value
PhasingInfrastructure

Typical legal ‘issues’ 2
Viability
Overage
State Aid
Works
obligations
Variations

• councils as investors
• councils as enablers
• councils doing delivery, ownership, and management
• traditional sales and/or development agreements
• joint ventures with private sector partners
• or all of the above!
Conclusion

Thank you
Contact us…
Stephen Matthew
+44 (0)20 7871 8505
Stephen.matthew@brownejacobson.com

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