This document summarizes various innovative funding mechanisms being used in the UK, including Local Asset Backed Vehicles (LABVs), Enterprise Zones, Tax Increment Financing (TIF), and JESSICA funds. LABVs allow public sectors to access private financing through 50/50 joint ventures. Enterprise Zones provide tax breaks and planning advantages to designated areas to generate investment. TIF allows borrowing against future tax revenues from development. JESSICA funds leverage EU structural funds to provide loans, equity, and guarantees for sustainable projects.

1. INNOVATIVE FUNDING IN THE UK Utrecht, NL – 7 December 2011 Andy Delaney – Director, Manchester office, Colliers International Richard Grass – Director, Head of Public Sector, Colliers International

2. Colliers International 512 offices in 61 countries More than 12,000 professionals worldwide World’s 3 rd largest real estate firm

3. UK Public Sector Clients

4. Agenda UK Economic Context Local Asset Backed Vehicles Enterprise Zones Tax Increment Financing (TIF) & Community Infrastructure Levy ( CIL) JESSICA Funds Discussion

5. Context Development in UK has been in downturn since the collapse of Lehmann Brothers in 2008 Values have declined by 30, 40, 50% or more; costs have continued to rise. This has led to widespread market failure in most economic sectors over a wide spatial area Banking crisis has left the sector starved of funds Public sector funding has seen a marked decline Regional Development Agencies have been abolished overnight “ The Perfect Storm” Delivering regeneration has to go on Innovative mechanisms are needed. How can the public sector use its land and property assets to deliver change? All this has been going on against radical change in urban and planning policy – these are interesting times!!

6. LABVs and PRPs Local Asset Backed Vehicles LABV’s Public Regeneration Partnerships PRP’s All different forms of Joint Venture All variants on one another 50/50 joint venture structure between the public sector and private partners with matched equity with life span of 10-25 years Mainly Limited Partnership Structures Public Sector property Matching Private Sector equity and expertise Third Party finance- Banks and Institutions

7. Non Recourse Bank Finance Private Sector Partner Development Skills and Cash Public Sector Partner Property Assets LABV Development Projects Existing and Future Means of dealing with disposal and regeneration of public estates in an efficient way. Retain control through 50/50 share and deadlock. Outsource cost and capital requirement. Simplified LABV Model Limited Partnership (LP), Limited Liability Partnership (LLP), or Company (Ltd)

8. Context Previous methods: Sale with planning permission Development Agreement with overage Drawdown Arrangement Political Background: The Carter Report £20bn The Public Finances – Reduce national debt The need for new public facilities The need for additional new build housing Public Sector Objectives: Open transparent, OJEU compliant procurement- best value and VFM Access to private finance Ongoing control Risk transfer

9. What do LABVs do that others do not? Treasury approved Limited liability structures / Limited Company Corporate entities capable of raising non-recourse debt Tax transparency within the LP/LLP structure Public sector retains 50% share in assets going forward Public sector obtains off balance sheet access to secured debt Public sector gains partnership with private sector specialist and matched equity Compatible with grant funding

10. Colliers Experience – Partner Regeneration PxP West Midlands- Advantage West Midlands (AWM): Langtree / BOS / AWM Initial Portfolio of £63m Target Size £200m 10 Investments & 10 Development Sites Additional purchases in hand 15 years OnSite Partnership- One North East (ONE): Langtree /ONE 23 sites, circa 850 acres of development land in the north east £25m Daresbury Science Park: Langtree/NWDA 150 acre Science Park Gateshead Borough Council: Providing strategic advice on non- operational property portfolio

11. Delivery Stage Scoping study, approval of Business Case Private funder/Buying Solutions sub E50,000 – Framework appointment without need for further competition Property consultancy Financial modelling Legal advice Structure and “Vires” OJEU Procurement Process- Output- PQQ Long List Invitation to Competitive Dialogue Short List Tender Stage c. 3 parties Bids Preferred bidder Financial Close Evaluation, Information Capture and Transparency Evaluation panel: Local Authority / Advisory Team / Matrix Scoring Evaluation by discussion: competitive dialogue process Information capture: all property and legal documents in password protected VDR hosted by solicitors Transparency: Replies to enquiries and all updates posted to website and available for all parties to view E- Tender format issues.

12. Partnership Model Needs to be genuine partnership – Pubsec must cede some control, Private Sector must commit to long term. Needs clarity of objectives and clear business plan. Critical Factors: the “dual control” problem weight and cost of administration and reporting over-engineering: does the scheme fit the vehicle fundability private sector concern at over-prescription deadlock default and valuation on exit

13. Timing Scoping study and outline business case 2/3 months Approval of Business Case and Stakeholder Buy In 2/3 months OJEU Procurement of Consultancy Team 1 month OJEU Notice of Project and PQQ Stage 3/6 months Invitation to Competitive Dialogue 2 months Bid Stage Preferred Bidder Stage 2 months Minimum Time Frame 9 months Maximum Time Frame 18 months

14. Costs Dependent on complexity and size of vehicle Unlikely to be less than E500,000 Scale of vehicle is required to justify cost Cost is amortised over 15 year term New assets slot into structure Cheaper than P.F.I Potential for single asset LP to deliver individual projects Scope for reduction in costs: – potential for over-engineering of documents? – an alternative procurement process?

15. Private Sector Demand Good - subject to model format: Draw down model with base price preferred for development based LABV’s. Banking / Third Party Finance: Thin for development based vehicle hence draw down model. Grant Funding: Increasingly uncertain TIF Probable funding route for Public Sector projects going forward but only for infrastructure projects and will require guarantee for shortfall. Enterprise Zones

16. Enterprise Zones – The 80’s Generation First generation Enterprise Zones were one of the key urban policy tools in the early 1980’s Mainly introduced in traditional industrial areas that had been hit by the industrial restructuring EZ’s brought simplified planning powers and exemption from business rates London Docklands (Canary Wharf) has been the most successful development Other locations, such as Liverpool and Manchester saw long term regeneration kick-started by the designation Many criticisms – were new jobs actually created? Did new companies start? Or just relocate?

17. Enterprise Zones – the Next Generation Part of UK government’s ‘Plan for Growth’ Four overarching ambitions Most competitive tax system in G20 Make the UK the best place in Europe to start a business Encourage a more balanced economy Create the most flexible workforce in Europe 21 new Enterprise Zones were announced in England as part of the Plan for Growth Budget 2011 Plan is to reduced barriers to enterprise Key tool of Coalition Government’s Localism agenda

18. Target Area Areas of England that have become overly reliant on public sector employment and have low levels of private enterprise This means the provincial cities of England, the country’s former industrial heartland – Manchester, Liverpool, Newcastle and Birmingham City Regions are disproportionately hit 22 Zones across England – now increased to 24 Incentives include 100 % business rate discount for five years Business rate retention Local Development Orders Super fast broadband

19. Enterprise Zone Locations

20. Early Successes Black Country Enabling the expansion of employment opportunities which will be crucial to the long term economic health of the area and delivering stronger, more robust supply chain driven employment Jaguar Land Rover has decided to build a new plant in the area, creating thousands of new advanced manufacturing and service jobs Humber – Renewable Energy Super Cluster Marketing the Humber as one of the UK’s leading locations for the manufacture of turbines. Potentially becoming an internationally important hub for the offshore wind energy sector and maximising the potential economic benefits of the area Siemens is one of many international investors into the area

21. Financial Incentives Business Rate Discounts Businesses will see a major reduction in their rates with no cost to the local authority Freeing up resources for further investment and/ or employment Business Rate Retention The uplift in business rate receipts will be used to support the priorities of the local enterprise partnership Enhanced Capital Allowances Partnerships interested in Enhanced Capital Allowances Legislation will define the areas to which enhanced capital allowances will apply ECA’s will be offered to the first three eligible companies on site in the areas defined by the legislation

22. Opportunities Rebalancing the economy Creating Jobs Creating businesses in areas of genuine economic opportunity Fostering public and private partnerships through local enterprise partnerships Creating competition to attract foreign inward investment

23. Questions Enterprise Zones and the financial and planning advantages will undoubtedly help to generate investment in EZ area; but It took 10 – 15 years for Canary Wharf to be a success; we need answers now Many EZs saw minimal job creation and many local companies relocated short distances to put themselves within the assisted area Implication of Enterprise Zones and Localism as a whole is that all areas of capable of being entrepreneurial and that these policies will unleash that potential It may happen, but it will defy history if it does

24. Daresbury Science & Innovation Campus World class Science and Innovation Campus in NW England UK Science Park Association ‘Outstanding Science Park Stakeholders include Universities of Liverpool, Manchester and Lancaster Science Park being developed over 20 year period by partnership between Langtree (developer), Science and Technology Facilities Council and Halton Borough Council 100,000sq.m to be built for science and innovation, high tech businesses and supporting infrastructure 10,000 new jobs to be created £150M of private investment and development through an Asset Backed Vehicle – Daresbury SIC llp Public Sector provides the land and planning powers, Private sector finance and expertise

25. Daresbury SIC LLP “ A model for future economic growth” – David Cameron Designated an Enterprise Zone August 2011 Finance saved through EZ will be reinvested by developers to deliver new specialist office, lab and technical space Designation as EZ gave Langtree the confidence to push ahead with their plans to improve campus infrastructure Pioneering Daresbury SCI-TECH Economic Investment Fund created to support entrepreneurship, support skills development and attract inward investment

26. Conclusion LABV’s: genuine benefits for non-operational portfolio not a “panacea” share in uplift in value and regeneration over a 15 year period L.A. retains stake, off balance sheet Treasury approved structure (under previous regime) transparent procurement process potential to outsource in house costs. EZs: Real financial benefits Good for PR and “selling the story” Not a means in itself Forcing change from grant culture

27. Community Infrastructure Levy (CIL) Introduced in 2008, expected to replace negotiated contributions Fixed tariffs on provision of new buildings – based on size and type of development Must be used to provide new infrastructure to support local growth, e.g. roads, transport, community facilities. Proposals to extend its use to the provision of social housing

28. Tax Increment Finance – how does it work? Origins in USA, - used for 50 years to finance infrastructure and urban renewal Allows local authority to borrow against future tax revenues generated by project within a defined area, to fund initial costs Usually small sites Funding undertaken through bond issue Developer can take some risk, e.g. through guaranteeing receipts in absence of tenants

29. The TIF Investment and Development Process TIF Area Defined Perform “But for” test Estimate current level of tax revenues Estimate growth in tax for TIF district Issue bond for amount greater than or equal to tax revenues Use bond to finance public works Loan repaid over time

30. TIF in the UK Pilot schemes invited in March 2010 October 2010 – UK Govt announces support for TIF “ I assure you it is the first step to breathing life back into our cities” Nick Clegg, Deputy Prime Minister Since then, slow progress and confusion! Now integrated into Local Government Resource Review Two options for introduction: “ Generalised TIF” - Borrowing against area wide growth “ Ringfenced TIF” – Borrowing against growth in a defined area Assumption is that local authorities will take the risk Legislation expected in 2013

31. Where is TIF appropriate? Needs clear demand from private sector and buoyant local tax base Lack of demand in many regions and infrastructure investment will not unlock growth

32. TIF in Scotland Already implemented in legislation 16 TIF applications to Scottish Executive First scheme approved for Edinburgh Waterfront £84m (€97m) loan serviced by annual revenues of £7.8m (€ 9m)

33. Vauxhall Nine Elms, London

34. TIF Pilot - Northern Line Extension £560m (€646m) cost estimate to build with two new stations Colliers and PWC feasibility study on TIF in 2010 Project revenues modelled under different scenarios ( business rates, developer contributions, SDLT) Addressed key issues of displacement and additionality Calculated that c .£460-£575m (€530-664m) construction costs could be supported by revenues.

35. Current Progress Nov 2010 – Council states it could be funded from developer contributions. £200m (€230m) pledged by REO. December 2010 – planning permission approved for 8m sq ft Battersea Power Station Public consultation in summer 2011 Nov 2011 – Govt backs extension in Autumn Budget Statement May become an Enterprise Zone May allow Council to borrow against Community Infrastructure Levy (CIL ) receipts Formal planning application in 2012 Complete by 2018? But….REO about to enter administration, new bid likely

36. TIF – Conclusions Not appropriate or feasible for all cities Requires ring fenced TIF to provide certainty to lenders (current proposals exclude rental uplift from business rates revenues from local authority control ) Compatible with Enterprise Zones, which can capture increases in local values. Needs some rationing to ensure central pool is large enough to deliver services Could be financed from Public Works Loan Board, Municipal Bond or private sector sources

37. JESSICA Funds J oint E uropean S upport for S ustainable I nvestment in C ity A reas Investment of EU structural funds allocation in revolving funds Promotes sustainable urban by supporting projects in urban infrastructure, heritage or cultural sites, redevelopment of brownfield sites, creation of new commercial floor space , energy efficiency improvements. Allocated either via Urban Development Funds or Holdings Funds Can be equity, loans or guarantees

38. London Green Fund - Context

39. London Green Fund The London Green Fund (a JESSICA holding fund) established in 2009 to invest in carbon reduction projects in line with the Climate Change component of the London Plan Focused on energy efficiency, waste and decentralised energy as the “3 biggest carbon reduction opportunities for London”

40. North West Evergreen Fund £350m (€404m) regeneration fund Supported by £30m ERDF funding + £10m from North West Development Agency This will unlock £30m match funding from public sector and £100m investment from two local authority pension funds Bank lending facility of £200-300m The Evergreen Fund will support the rejuvenation of commercial and industrial assets, sustaining employment in key regional centres

41. JESSICA - Advantages and disadvantages Sustainability – returns to investors rather than grants Leverage – combining ERDF with other funding sources Flexibility – structure allows for equity, debt or guarantee Expertise – technical and financial expertise from private and banking sectors Money has to be allocated to projects by 2015 to qualify Lack of awareness Expensive and time consuming to establish

42. Key Contacts Richard Grass Head of Public Sector Tel: +44 207 487 1625 [email_address] Andy Delaney Director, Consulting Tel: +44 161 831 3318 Andy.delaney @colliers.com Eric Annaert Director, Head of Amsterdam Office Tel: +31 (0)20 540 55 20 [email_address]

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