introducing the green central belt

The Green Central Belt

A Proposal

Chris Cook

Linlithgow 14th September 2015

“21st Century problems cannot be solved with 20th Century solutions”

ResilienceFragility of global financial system exposed in October 2008UCL Institute for Security & Resilience Studies research- What works internationally? What used to work, historically?- Linlithgow action-based research with Nordic Enterprise TrustCentral government is creating a vacuum which may be filled

bottom up by mobilising community resources:Land/Location – majority of economic value has historically

come from land development & useCapital - material resources (eg buildings & equipment) &

immaterial resources (eg energy & IP)Human – Care, Intellect ('Smart'), energy (manpower)

Resource Resilience

Since 1980 Denmark's GDP rose 78%

Energy use has been stable

Carbon fuel use has declined

How did Denmark achieve this?

Resource Resilience

Least Carbon Fuel Cost principle

- not 'least Danish Krone cost' (or least $, € or £ cost)

- minimum carbon fuel input for a given output of electricity, heat or power

- investment in renewables, heat, transport, energy efficiency

Linlithgow Natural Grid

Aim: Energy Independence (and hence energy scurity & resilience) for Linlithgow

Operating Principle: Least Carbon Fuel Cost

Rationale: the more expensive carbon fuel becomes, the more £ profit there is in saving it

James Watt approach: sharing carbon fuel savings

'Natural Grid' name coined for North South Canal

Green Central Belt – Millennium Link Canals

Linear Docklands....or Linear Eden? People don't want to live next door to the M99, to HS2

or to Runway Three......….but they pay handsomely to live by the River ThamesUS intercontinental rail & London Metropolitan Line both

funded through development along right of way£2bn public investment in Jubilee Line extension gave a

£17bn windfall profit to property owners on the routeCapturing % of increased land rental value & future use

value will fund the investmentHow may this land value increase be captured?

Development CorporationsCorporations set up to develop new towns eg

(Livingston) or regeneration (London Docklands)Investment, development & planning powers allocated

to the corporation for duration of developmentMost recent was West Northamptonshire Development

Corporation (WNDC) which ceased operation in 2014“According to Professor Parkinson, the rest of UK can learn from this

approach: “We’ve found that development corporations are most effective when they’re locally controlled and focused on regeneration. Alternative types of vehicle are better equipped to deliver major housing settlements. WNDC is a clear example of what can be achieved with the right focus and leadership”.

“From the onset, WNDC recognised that headline projects like Avon Nunn Mills and St Peter’s Waterside wouldn’t regenerate the River Nene on their own. It needed to become a thriving community resource again.”

“Whereas most towns treasure and celebrate their waterways, Northampton’s waterside had long been a forgotten and neglected asset.”

Green Central Belt CompanyCompany Limited by Guarantee- Stakeholders (not mutually exclusive)

– Councils, Land-owners, Occupiers, Investors, Developer/Managers

- Tenure– Contractual use: no lease/licence, tenancy,

sale- Governance

– Nondominium – stakeholders have agreed veto rights, not dominant rights

- Innovative Financing & Funding necessary

Financing - for short/medium term, high risk development of new assets

16/06/10 15

Funding - for long term, low risk use of newly complete or existing assets

16/06/10 16

Development as a Service - Capital Partnership

Green Central Belt Company

Contractors

DevelopmentInvestors

ProfessionalDevelopers

% %

Financing

16/06/10 17

A Capital Partnership is not an Organisation

16/06/10 18

It does not own anything, do anything, employ anyone, or contract with anyone

16/06/10 19

It is simply a framework agreement within which the stakeholders self organise

16/06/10 20

Conventional property development is a transaction model: developer as middleman

DeveloperLand

OwnerProperty

Buyer

£ £

PropertyBuyer

£

16/06/10 21

Buy, Borrow, Build and B...er Off...

16/06/10 22

Financed by Equity (ownership) and Debt (from credit institutions aka banks)

16/06/10 23

Capital Partnership offers a new approach to financing

16/06/10 24

Land-owners may sell land to GCB.....


Land Owners

16/06/10 25

...or may invest the value of the land

Green CentralBelt Company

Land OwnerInvestors

Land Owners

Land Value

16/06/10 26

Councils invest value of planning gain


CouncilInvestors

Land Owners

Value of Planning permission

16/06/10 27

Contractors invest at least the profit margin


ContractorInvestors

Land Owners

Profit Margin

16/06/10 28

Risk-Takers invest £ to cover agreed costs


Risk-Taker£ Investors

Land Owners

£

16/06/10 29

Developers invest 'Intellectual Capital' of concept and services


InvestorsLand-owners, Councils,

Contractors, Risk TakersDevelopers

Land Owners

Value Value

16/06/10 30

Affordable Homes are built & occupied


Investors

Occupiers

Managers

Prepay %

Rental

16/06/10 31

Re-financingLong term funding investment repays development finance

Financiers have the option to reinvest development profit as funders eg for their pensions

Prepay - simple but radical funding instrument

16/06/10 33

Prepay Rental Credits – returnable in payment for property occupation

16/06/10 34

Prepay

Tax

Tax PrepayTax Prepay – credit returnable in payment of taxes

Tax Return – 'stock' part of tally stick returned to Treasury

Rate of Return - rate over time at which stock is returnable for cancellation

eg Prepay £8 for £10 tax - £2 profit 25% pa rate of return- not fixed - depends on existence & quantity of flow

Rental Prepay CreditsCredit returnable in payment for £1.00 of Rent

10,000 Credits sold for £8,000 give a 25% absolute return (£2k profit / £8k investment)

If Rent is £10k pa Rate of Return is 25% pa

If Rent is £5k pa Rate of Return is 12.5% pa

If Rent is £2k pa Rate of Return is 5% pa etc etc

Genuinely affordable rental is set


Occupiers

Rental

Proportional Share allocated to Management


Occupiers

Manager

%

Rental

Balance of Rentals available to Investors


Investors

Occupiers

Managers

% %

Rental

Prepay Credits returnable in payment for rentals are created and sold to investors

16/06/10 41

Example – Pool of 1,000 homes has affordable rents of £4m pa

16/06/10 42

After 25% for maintenance, depreciation £3m pa is available for funding

16/06/10 43

Debt: £3m pa will fund <£40m debt over 20 years at 5% compound interest

16/06/10 44

Prepay Rental Credits1/ £3m pa funds £75m investment over 50 yrs as follows:- Sell 150m £1.00 credits at 50p- 3m credits returned per year for 50 years at constant rent- £75m profit over 50 years = 1.5% rate of return pa

2/ £3m funds £40m investment over 33 yrs as follows:- Sell 100m credits at 40p- 3m credits returned pa for 33.3 years- £60m profit over 33.3 years = 1.8% rate of return paNote – no compound interest, but if rents increase so does rate of return

Rental Credits – value proposition for Investors not dissimilar to a REIT

16/06/10 46

Except that, crucially, Rental Credits are returnable in payment for rent

16/06/10 47

Rental Credits – as rental levels rise or fall rate of return increases or falls

16/06/10 48

Occupiers are natural buyers and acquire rental credits by paying rent in advance

16/06/10 49

Occupiers who care for their property may receive 'Sweat Equity' rental credits

16/06/10 50

Summary – Green Central BeltEco development zone centred on Central Belt canalsDevelopment permitted subject to membership of

Green Central Belt Company as follows:- least carbon fuel cost development- high standards of design- co-ownership Nondominium tenure- investment available from development financiers &

long term funders- Councils exercise supervisory planning power/quality

control/standard setting

Outcome – Green Central BeltRegeneration of post-industrial land along routeAffordable, high quality, energy efficient homesNew asset classes for local investors- medium risk/term development investment- low risk, long term investment in affordable homesNew policy options available- care credits for land use credits- local dividends- land loans replace mortgagesSustainable development-as-a-service

21st Century problems cannot be solved with 20th century solutions.........

…....21st century solutions pre-date modern finance

introducing the green central belt

Real Estate