Steven Tolson - Investment Inputs: Citizens, Developers and the State

“Delivering Better Places”

Design Skills Symposium 2011, Tollbooth, Stirling

Steven TolsonDirector Ogilvie Group, RICS

Investment Inputs Citizens, Developers and the State

Steven Tolson

Delivering Better Places

Delivering Better Places in Scotland

• Delivering Better Places Summary• The Place Promoter (Vauban Case Study)• Consumer / Citizen Demand, Value,

Development Viability and Investment • A Delivery Model through Multi Developer

Participation

http://www.scotland.gov.uk/Resource/Doc/336587/0110158.pdf

Place Quality is Important

“Too much development in Scotland is a missed opportunity and of mediocre or indifferent quality. “

Scottish Government’s Council of Economic Advisers, First Annual Report, 2008

Good Leadership A Champion who Promotes and stays with the Project

• A leader drives the project, breeds confidence, reduces risk & widens participation

• A Place needs a passionate promoter

• The Leader must galvanise support and delivery

• The Leader must foster a place making culture

• A Leader can not be a shrinking violet

Co-ordinated DeliveryJoined up working with NO SILOS

An orchestrated approach where interests are stitched together

Control the spatial development framework

A Master Plan is not just a drawing with aspirational statements.

A Master Plan should be a proposition that:

• market tests• understands infrastructure

requirements • development appraisals testing

viability (business case)• delivery methodology.

Exercise ownership powerParticipation rather than offloading due to fear of risk

Attract funding for advance infrastructure provision

Long Term Investment through 30 + year loans

Secure design quality through procurement strategies

• The State should lead and participate as well as promote.

• Making a Place is an Investment (create & manage asset)

• Delivery through multi developer participation not single entity

A multi developer approach speeds delivery, spreads

risk, creates a competitive environment and produces

variety that helps form a socially balanced community

IJBURG

Investment & Stewardship over time

• Asset Management not Development

• Cultivate place to gain positive reputation

• Good stewardship helps enhance value

Mains Estate, Milngavie

Pride in Place, Mains Estate, Milngavie Developed by Lovell in 1990. Need sufficient funds to ensure good

maintenance but good landscape should achieve good value.

Vauban

A New “Green” Community for Freiburg

Vauban - A new place in an Intelligent City helped by a Place Promoter

• Chief Planner, Professor Wulf Daseking a person with leadership qualities and vitality bringing influence in Freiburg.

• Daseking and team not only plan they deliver.

• Also strong political leadership allows focus on long term investment commitment

Leaders are prepared to take RISKS

Simple Proposition for Freiburg

• Freiburg seeks to keep its people in its City.• Freiburg leaks young people out of the City in search

of affordable accommodation. • Young people commute many kilometres between

home and work. Bad for the city (congestion), bad for the planet (emissions), bad for social cohesion and bad for city prosperity.

Can we do the same in Scotland?

Going home for Lunch in Vauban In Freiburg 24% walk 28% bike, 20% drive and 18% by bus or tram

Individual Houses in Vauban Variety of shapes and sizes. Not outstanding architecture but it doesn’t matter

Vauban Resident’s Car Parking

No parking by house with resident Car Parking on the edge of Vauban – Allowed 20 mins to unload by front door

Sustainable Housing producing more energy than used

Market in the Square Vauban

Place managed by

Vauban Forum Community with Freiburg Municipality.

A Mixed Use Place with Housing, Education, Retail,

& Offices.

Consumer, Developer and the State

Plot Purchase / Tax State

PlaceInfrastructure

TaxCitizen /

Customer

Property Purchas

e

Developer

The Place Network Priorities, Risk and Value

The Key Players

• Citizen / Consumer – Long Term Investor• Developer & Funders – Short Term Investor• State – Long Term Investor

3 Key Values of the Citizen / Consumer

Dominant GroupComfort, Convenience and Familiarity

Subordinate Group Opposite values to Dominant Group

House Builder’s Motivations

Tried and tested product that:1. Is familiar and known to sell2. Is built with relative ease3. Gets quick statutory consents 4. Has cost price certainty once above DPC level.5. Is programmed and managed efficiently6. Minimises RISK

House Builders satisfy the Dominant Group’s Values of Comfort, Convenience and Familiarity

Specialist [Creative] Developer

Bespoke product that is:1. Different (less familiar) and value less obvious2. More complex to design and build3. More difficult to get statutory consents 4. Less cost certainty5. More challenging to manage work in progress6. Carries more RISK and UNCERTAINTYA Specialist Developer’s core customers are likely to

be from the Subordinate Group.

Some Issues for Good Quality Urban Development

• Need clients who appreciate good design and are “informed”. It’s not just about the designer.

• Urban site characteristics need a design solution that fits (none standard). Therefore, non volume developer has greater opportunity to be competitive

• However, specialist developer find it more difficult to access funds so development scale limited to equity input

• Public project procurement barriers due to process and evaluation favours financial strength of corporate entity (risk aversion).

The Burrell Company Edinburgh Projects that

fit the Place

Valuation and Funding

• Mortgage for purchase of completed dwelling• Development Project Funding

Level of Funding based on Loan to Value (LTV) Mortgage 70%-90% (if you are lucky)Development Funding 60%-70%

Loan on value not on price. Therefore the Valuer has an important role to play

Valuation Approach• Two valuation elements

- Occupier Functionality- Investment Value

• Value of Good Design- “Few people treat housing as a work of art” It is a

luxury that most can’t afford”.- Premium for Design is possible but only if purchaser

is convinced they will get their money back- Premiums more likely where there is “intelligent”

design such as green sustainable housing where there are energy savings benefits

Valuers don’t value it if the People don’t value it!

The Valuation of a Place• What is the ownership interest(s)?• Single interests – shopping mall etc. Value

based on an investment method – capitalisation of a net rental income.

• Multi interests –Value based on summation of investments (landlord and tenant) and owner occupation value.

• Values of individual assets strongly influenced by Place reputation

Better Places in Multi Ownership?

• Single Ownership with good estate management practices – London estates

• Long term Places in Multi Ownership. Quality depends on multi owners coming together to establish and care for the Place. But State has reduced its role and self help approach is variable. (note self help is not “convenient”).

• Possible collective benefit from Place Leasehold arrangement

Good Reputation = Good Value• Good Places are not about style but substance• Good Places take 20+ years to be recognised.

Requires a combination of good physical design, people’s activity and interaction and collective caring for the Place.

• Valuers don’t think that good architecture represents higher values but they do recognise that a place’s reputation will be reflected in market demand and value.

Place making design does have long term value

Lessons from Continental Europe

• More sociability with less concern over privacy. • Continentals love their cars but also use public transport.• State is active in making places, adopts a long term

investment approach and takes risks.• Planners have greater respect and are at the top table• State limits the scale of developers participation. There

is wider participation from individuals and small companies.

• Greater variety achieved giving consumer choice.

Familiarity

A modern application of a

recognised housing form.

Urban Housing Block of Town Houses and Detached Based on Ijburg Typology

32no Town Houses

12no Detached Houses

Block 102m x 92m

48 dwellings per hectare

Hypothetical Development Appraisal for Infrastructure and Housing Development

Housing Development Serviced Land Valuation

32no Town Houses @ £200,000 (Parc URC @ £180k) £6,400,000

12no Detached Houses @ £256,000 £3,072,000

Gross Development Value £9,472,000

Development Costs £7,232,406

Site Value after fees & finance £1,962,255

(£44,597 per plot)

Infrastructure Development Valuation (non serviced land)

Gross Development Value £1,962,255

Infrastructure Costs £883,048

Site Value after fees & finance £999,671

(£22,720 per plot)

Cost of Quality

• Evidence from Exemplars suggest design quality cost around 20% more than conventional development costs.

• There is no evidence that developers can recover this additional cost therefore the impact is on land value.

• The perimeter block value based on 20% design cost premium reduces the land value from £1,962,000 to £21,000. (NIL VALUE)

Delivery through a Multi Developer Approach• Europe - State is the Place Developer• Scotland - public sector has assets but is risk averse • Serviced sites sold to multi developers (volume, small

builders, housing co-ops, associations and individuals for serviced plots)

• Greater range of dwellings creates healthy competition, quick delivery and a balanced community.

• Public sector has access to relatively long term finance whereas private sector has little equity and debt is difficult.

• Public sector needs to use its covenant strength and think about guarantees. Public sector needs to take more risks.

Public Sector Partner

JV PlaceDeveloper

Private Sector

PartnerDeveloper

Equity Cash Match for Assets

AgreementsShareholders

Asset ManagementDevelopment Management

LoanConstruction

ExternalPrivate Debt

Funders

Public LoansPWLB Jessica TIFS etc

Developer “A”

Developer “B”

Developer “C”

Developer “D”

Multi Developer Delivery Approach

Development Agreements

Land Asset

Summary• We need creative informed Leaders who can inspire a

change of culture. These leaders should be at the Top Table of Decision Making

• Get clear and consistent joined up design policies. • We need a switch to long term investment having faith

that good place making will bring value in the end. • Place makers need to have skills in economics and

delivery• We should refrain from talking about style and

concentrate on the real ingredients of place; PEOPLE! • We should not be frightened to take a risk

Urban Design in the Real Estate Development

Process

Steve Tiesdell & David Adams

Wiley – Blackwell

FURTHERREADING

PLACE MAKING

DELIVERY

September 2011