Public Sector Residential Land Disposal & Development

Deferred Receipts Mechanisms

Liam Fennell

RBS Property Ventures

23rd June 2009

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Liam Fennell - Track Record

Director Property Ventures based in Edinburgh (2006-Present)

Focused on Regeneration & Public Sector Joint

Ventures.

Scottish Enterprise (1991-2006)

Area regeneration: My Future’s in Falkirk,

Raploch URC, Chemical sector initiative, Life

Sciences, business property.

Specialist developments: science parks –

Aberdeen, Edinburgh Bioquarter, Edinburgh

Technopole, Pentlands Science Park, Roslin

BioCentre, Stirling University Innovation Park.

Local Regeneration: Exchange District –

Edinburgh International Conference and Financial

Centre. Accessing ERDF.

Construction & Mining (open cast & deep mines)

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Property Ventures – Edinburgh

PV work alongside our colleagues in the corporate bank to provide a total funding solution for property

deals in the UK and Ireland PV provide the equity and mezzanine element Deals cover all property asset classes and transaction types but must have a value driver and a

planned exit – typically asset management, development (including speculative) and planning plays Deals are property specific No typical deal structure – each deal is tailored to meet the specific needs of the partner and

transaction Deals can be effected via lending with profit sharing exit fees, joint ventures, limited liability

partnerships, limited partnerships and direct ownership with profit related fee for partner Typical deal size is GBP5-150m. Currently PV Edinburgh have over 80 active deals with a total

exposure in excess of GBP1.5bn PV Edinburgh are a team of 14 comprising a mix of property and finance professionals

PV fund the gap between senior funding and the amount of equity the partner can contribute

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Partner Partnership – partner as principal Track record/reputation of partner is key “Pain” money from partner is required

Property Quality of asset Reasonableness of appraisal assumptions – yield, income, costs, timing Portfolio/ appetite for sector/transaction Exit – when and for what price? There needs to be a value driver

Risk vs Reward Evaluate risks Profitability of scheme Potential return vs risk being assumed

Approach – Key Factors

Partner

Property

Risk vs Reward

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Deal Structures

Structures are driven by the specific needs of the partner and the transaction

– Control

– Transparency

– On/Off Balance sheet

PV are currently working in the following structures

– Lending with profit sharing exit fees

– Joint Ventures (50:50) with minority/majority feedback

– Direct ownership with profit related fee for partner

– LLPs (Limited Liability Partnerships)

– LPs (Limited Partnerships)

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Property Market Correction

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Who is lending (June 2009)? – Savills “top 22” with anappetite to lend in 2009 (above £10m)

• Abbey

• Barclays Bank

• BLME

• Canada Life

• Coutts & Co

• Deka Bank

• Deutsche Postbank

• DG Hyp

• Eurohypo

• Handelsbanken

• Helaba

• HSBC Investec

• Landesbank Berlin

• LBBW (Stuttgart)

• Lloyds Banking Group

• Munich Hyp

• Nationwide BS

• Nord LB/Deutsche Hypo

• Norwich Union

• RBS

• West Immo

Note:

10 are German lenders, 8 are UK lenders and 4 are other

international lendersSource: Savills

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Funding Re-benchmarked

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Risk Profile

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CASE STUDIES

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Public/Private Regeneration Projects/Vehicles

Isis Waterside Regeneration

English Cities Fund

Blue Print

Igloo

Priority Sites, Welsh Industrial Partnership, Networkspace

ONE Buildings for Business, NorwePP, PxP, ONEDIN

Local Asset Backed Vehicles – Croydon, Tunbridge Wells

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Infrastructure Funds

Tariff Based Models English Partnerships Milton Keynes Tariff, Bedford

SWERDA

JESSICA

BIDS (or Tax Increment Finance)

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Cart Corridor, Renfrewshire

A location specific GBP30m public / private

partnership between RBS (50%) Renfrewshire

Council (45%) and Scottish Enterprise

Renfrewshire (5%) Established in August 2005 to achieve planning,

build, let and sell office, industrial and

commercial units at Cart Corridor close to

Glasgow Airport To be developed in 5 phases, Project Life

estimated at 5 years By 2010 the project is intended to create 1000

new jobs with an additional GVA of GBP245m

for the Scottish economy

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Higher Broughton, Salford

Limited Partnership vehicle formed in May 2004 to develop 5 phases of mixed use regeneration scheme

Joint venture between RBS (41%), Salford Council (19%), and developers City Spirit (20%) and Inpartnerships (20%)

Land remediation was supported by Manchester and Salford Housing Market Renewal Fund.

Development to be in ‘Homezones’ of 20-30 units to foster community atmosphere

Phase 1 consists of 177 units (apartments and three to seven bedroom houses) and is due for completion by mid 2007

Future Phases will include a community hub, 193 apartments for key worker rental, 60 affordable apartments, 115 units mixed tenure, plus 5,000 sq ft food store and 13,000 sq ft medical centre

Over 60% of homes sold off-plan Winner of ‘Best Family Home’ and ‘Best Overall

Development’ at MEN Residential Property Awards on 12 October 2006

www.broughtongreen.co.uk

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Priority Sites

Established October 1997 as a Joint Venture

between RBS (51%) and English Partnerships

(49%) Brought together the financial strength of RBS with

England’s national regeneration agency. Remit to

undertake development of industrial, hybrid and

office space in areas of economic need Now renowned as one of the most active

speculative commercial developers in England Initial target was 1.3m sq ft of industrial space By July 2007

– 3.12m sq ft of floor space had been built

– Over GBP240m had been invested in the regions

– Opportunities for 6,500 people had been created

– Further 700,000 sq ft was underway with 900 sq ft

in the pipeline www.prioritysites.co.uk

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Priority Sites Exit route involves the lease of or sale of individual developments to owner occupiers or individual

investors, or leasing to occupiers

Cannis House, St Austell Croft Business Park, Bromborough

Wansbeck, Ashington Dakota Business Park, Speke

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Welsh Industrial Partnership (WIP)

A public / private partnership between RBS (51%)

and Welsh Assembly Government (previously

Welsh development Agency) (49%) Established in 2002 to fund and develop

industrial units throughout Wales. RBS provided

funding up to GBP32.6m WAG contributed GBP0.98m equity and

contributed GBP9m investment property portfolio

to represent the gap funding appropriate for the

development programme WAG undertake the project management and

manage the external property advisors Phase 1 consists of 240,000 sq ft in five locations

costing circa GBP14m The partnership is being extended until July 2010

and will undertake further speculative

developments

Gemini Court, Baglan Energy Park

Integra St Asaph

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Project Omega, Warrington

50 / 50 Joint Venture with the Miller Group Site remains in the ownership of English

Partnerships. JVCO has an option to draw down

land for a fixed price (subject to overage) on an

as needs basis 500 acre brownfield site (former US military use)

at Warrington Potential to develop up to 7m sq ft of mixed used

development Planning achieved for 1.6m sq ft of logistics /

industrial and 1.5m sq ft of offices and ancillary

use 15 / 20 year time scale www.omegawarrington.co.uk

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Ecosse Regeneration Ltd

AEquity, mezzanine and debt funding provided to Ecosse to assist in acquiring and obtaining planning for c1200 acres of land at Polkemmet, West Lothian, Scotland

Original investment made in April 2002 – long term project

Outline planning consent has been granted for

– 2000 residential units

– 500k sq ft class 4 (business/offices)

– 500k sq ft class 5 (industrial)

– 500k sq ft class 6 (storage/distribution)

– Two PGA designed golf courses

– new M8 motorway junction

– Neighbourhood shopping centre Contract awarded to extract 1.6m tonnes of coal

via opencast to provide a development platform and remediate the site

Discussions ongoing with residential developers. Options being explored in connection with the

commercial land

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Summary/Conclusion

Regeneration is a Long Term proposition Public sector can generate confidence for private sector by investing and reducing risk e.g. planning,

site assembly, decontamination, pump priming, public realm, related investment etc Clear objectives required, value driver(s) and a planned exit Flexibility to respond to changing market demand and conditions Pricing will reflect level of risk IPD research indicates returns in regeneration areas comparable with other property classes But there are barriers to investment:Risk – lack of coherent strategy, lack of track recordCost – high upfront bidding, heavy investment in infrastructure, timescale Demanding – of people, time vs opportunity cost with other projectsScale – single site vs portfolio approachPremature or ill conceived proposalsClear understanding and expectation of the private sector partner’s role and contribution

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