regeneration seminar 2016, manchester - creating a place

Creating a placeMarch 2016

© 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

INFLUENCE AND INTERVENTION

As Planning AuthorityLand Assembly FacilitatorMarket Site / Select DeveloperAs Master DeveloperUndertake 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 CovenantCASE 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.


CASE STUDY – ALDERSHOT

And then…..

Preferred developer drops out

Housing market plummets

Affordable housing provider pulls out

Huge scheme viability gap


CASE STUDY – ALDERSHOT

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!


CASE STUDY – ALDERSHOT 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


CASE STUDY – ALDERSHOT 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

The landscape is changing?

• 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

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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

Private enterprise Housing associations Local authorities Housing need

Hous

ing

com

plet

ions

, Eng

land

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)

Contractors DevCo

Occupier, etc – or sale out to an investor?

Wholly owned, CLS? Construction

Corporate JVLA Developer

JV Co (or LLP)

Bank Other Finance

50% shares (nominal)

Investment of cashfor loan stock

50% shares (nominal)

Investment of landfor loan stock

Development Subsidiary #2

Development

Subsidiary #1

Housing to Rent

Subsidiary

Commercial

Investment

Subsidiary

Programme

Management

Subsidiary

SUB- DEVELOPE

R[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

PARTNER

PARTNER

Partnership Agreement

Members Agreement

Pros and consDevelopment 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

Powers

Typical legal ‘issues’

CPs Land Value

Phasing

Infrastructure

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

[email protected]

regeneration seminar 2016, manchester - creating a place

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