Regeneration seminar 2016, Manchester - creating a place

© MONTAGU EVANS LLP REGENERATION SEMINAR – MARCH 2016
Development ConsultancyDevelopment Consultancy
CREATING A PLACE
THE CHANGING FACE OF DELIVERY
Malcolm Hewines

INTRODUCTION
 Construction is the tip of the regeneration iceberg
 The formative stages are crucial
 Public/Partnership lies is at the heart but…
 The public sector is playing a broader delivery role
 The Budget

IT’S A CHALLENGING AND CHANGING PICTURE
 Local Government finance
 Housing Bill and housing delivery
 Still need to stimulate economic activity
 Changing corporate objectives - greater self sufficiency
 Council’s need to generate investment returns
 Access to low cost funding

“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 Familiar Message!

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

Examples of the Public Sector’s changing role
There are an increasing number of tools at public sectors disposal

Councils as Investors
 Buying strategic town centre
assets – shopping centres
 Investment income
 Farm Land
 Housing Land
 Employment land
 Energy generation

Council as Enabler
 City / town centre development increasingly has required a helping hand
 Council’s taking a pre-development role – working with specialist development
managers. Examples include:
- Chester
- Newport
- Barnsley
- Sheffield

Using Council Covenant
CASE STUDY – BRACKNELL
 £200m town centre ‘stalled’ scheme being
delivered by L&G/Schroders. Council played a
key enabling role
 Council took lead on finding a deliverable
solution – use of lease wrapper
 Future rates income important
 Other schemes being unlocked using “rent
guarantees”

Local Housing Companies
 Council’s becoming housing
developers/investors
 Objectives: meeting housing need, filling
market gaps and creating new source of
revenue
 Potential for new public/private opportunities

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

Early Stage Considerations

PREPARATION - VIABILITY TESTING
 Understand the project risk profile
 Viability “tools”
 Consider Partner(s)’ risk appetite - de-risk if you can!
 Give market clarity on commitments & deliverability
 Use soft market testing to “shape” the proposition

POTENTIAL PITFALLS
 Procurement
 Resources constraints
 Marginal viability
 Political uncertainty

POTENTIAL PITFALLS
AVOIDANCE MEASURES
 Create “Unstoppable Momentum”
 The right partner for the right scheme
 Share ideas and referrals

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

CASE STUDIES
ALDERSHOT, BICESTER, HEREFORD
& NEWTON ABBOT

CASE STUDY – ALDERSHOT
 Major edge of centre development
 Development competition held
 Mixed use scheme – housing and
leisure/cinema.
 Housing cross funding cinema
 Development agreement in place
 Supporting policy and application submitted.

And then…..
 Preferred developer drops out
 Housing market plummets
 Affordable housing provider pulls out
 Huge scheme viability gap

Not over till the fat lady sings!
 Strong Council championing cause
 Westgate scheme reshaped
 Devt Agreement assigned - new development partner
 Joint Venture entered.
A true partnership begins!

 Tested new development scenarios
 Council acquires remaining land
 ‘Knocked out’ potential challengers
 New company set up – Westgate LLP
 Secured lettings
 Council delays return
 Forward funding secured

 2001: feasibility study
 2003: site marketed
 2004: development partner selected
 2007: Devt Agreement signed / PA submitted
 2008: scheme reshaped / new developer on board
 2009: JV entered
 2010: new PP granted / construction begins
 2012: opens for trade.

CASE STUDY – LESSONS
 Strong, proactive Council = results
 Council assembled land = very positive
 Innovative funding solutions needed
......but still long delivery timescales.

CASE STUDY – BICESTER
Early Steps
 Retail study
 Feasibility / viability testing
 Planning guidance prepared

What Next?
 Developer competition held
 Major interest
 Developer selection process
 Public consultation on proposed schemes

 Viability issues grow
 Developer partnership breaks down
 Legal discussions halt
 Political pressure grows
 Land assembly incomplete
 Weakening occupier demand

Resolving the problems…….
 Foodstore doubles in size
 Sainsbury buys out partner
 Council invests in scheme – buys cinema
 Civic building and library later phase
 Compulsory Purchase

CASE STUDY – LESSONS
 Viability is a continual ‘delivery’ issue.
 The public sector often plays a key role in delivering complex
schemes.
 No ‘right’ way for a development to come forward. Be flexible!

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

AND FINALLY……..2016 BUDGET
 Devolution: GM 100% rates retention 2017, Liverpool by 2020
 Northern Powerhouse Funding: M62 upgrade (£160m), HS3 planning (£60m), Trans-
Pennine tunnel business case (£75m)
 Business Rates – Small Business relief, CPI increases from 2020.
 Housing & Planning: Starter Homes Land Fund, Local Growth Fund, increased CPO
powers.

Regeneration projects
Craig Elder

• 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…
Craig Elder
+44 (0)115 976 6089
Craig.elder@brownejacobson.com

Regeneration seminar 2016, Manchester - creating a place

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