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ACES Presidential Conference
‘Meeting the Challenge – Making Our Assets Work’
Unlocking Finance Through Property
Stephen ClarkSenior Director - CB Richard Ellis September 2007
Local Authorities - Unlocking Finance Through
Property
Topics to be Covered
Rules and PowersBorrowing and InvestmentFunding Opportunities
– Sale– Lease– Project specific arrangements– Strategic asset management arrangements– Asset backed partnerships
Local Authorities - Unlocking Finance Through
Property
Why do Local Authorities hold Property?
Operational/Service deliveryFinancial - capital receipts and income
(investment)Economic development, regeneration and
control
Local Authorities - Unlocking Finance Through
Property
Rules and Powers
To hold propertyTo invest in propertyPrudential borrowingTreasury management strategiesPractical implications
Local Authorities - Unlocking Finance Through
Property
Options for Raising Finance
SaleSale and leasebackBorrowing against future receipts and revenue
savingsPFIPublic private partnership (partial disposal)Asset backed partnerships
Local Authorities - Unlocking Finance Through Property
Borrowing Against Future Receipts or Revenue Savings
How certain are the receipts/savingsVery low cost of borrowing (PWLB)Accounting treatment - MRPRisk transferLocal Authority office accommodationTenant purchase
Local Authorities - Unlocking Finance Through Property
Case Study 1 - Perceval House (London Borough of Ealing)
Local Authorities - Unlocking Finance Through
Property
Case Study 1 - Perceval House
(London Borough of Ealing)
Passing rent £2.65 million per annumLease expiry – September 2006Dilapidations dispute - Landlord claimed £16
millionCouncil desire to invest in improving its
premisesPurchased for £33.5 million (1/4/04)
Local Authorities - Unlocking Finance Through
Property
Project Specific Partnerships
Redevelopment of an existing assetUsually involves densificationRequires high values from enabling
developmentCan achieve risk transferCan introduce high level urban design and
regeneration
Local Authorities - Unlocking Finance Through
Property
Case Study 2 - Swiss Cottage (London Borough of Camden)
Local Authorities - Unlocking Finance Through
Property
Case Study 2 - Swiss Cottage(London Borough of Camden)
£20 million leisure centre funded entirely by enabling development
Masterplan originally designed by Sir Terry Farrell
Part of a wider regeneration initiativeProjected to release over £0.65 million per year
revenue fundingThis enabled LBC to fund the refurbishment of
the adjacent listed library
Local Authorities - Unlocking Finance Through
Property
Project Specific Partnerships -
Other Examples
Oxford CastleBrighton Convention CentreRoyal Borough of Kensington and Chelsea
Estates Initiative
Local Authorities - Unlocking Finance Through
Property
Oxford Castle
Local Authorities - Unlocking Finance Through
Property
Brighton Convention Centre
Local Authorities - Unlocking Finance Through
Property
Royal Borough of Kensington and Chelsea
Local Authorities - Unlocking Finance Through
Property
Strategic Asset Management & Development Partnerships
‘Partner’ selected to unlock potential across a specified portfolio e.g. an industrial estate
Land drawn down as opportunities are identifiedMay include a management contractPartner receives a priority return plus overageMay guarantee a level of incomeActive management includes purchase of
interests and undertaking development Arrangement could last 5 to 15 years
Local Authorities - Unlocking Finance Through
Property
Strategic Asset Management & Development Partnerships
Benefits– Incentivised management
– Ability to raise finance for active management
– Harnesses private sector skills and resources
– Economic development
Disadvantages– May pay away part of future growth
– Tied to one partner
Local Authorities - Unlocking Finance Through
Property
Asset Backed Partnerships
Involves a portfolio transfer to a new vehicleCouncil/RDA holds less than 50% interest (off
balance sheet)Limited partnership structure most financially
effective (tax treatment)Long term arrangement - 30 years or morePrivate sector partner manages the estateCouncil/RDA receives cash, loan note or
combination
Local Authorities - Unlocking Finance Through
Property
Asset Backed Partnerships
Benefits– Incentivised co-investment and management – Greater flexibility of action– Risk transfer– Economic development– Improved financial performance– Removes local political interference
Local Authorities - Unlocking Finance Through
Property
Asset Backed Partnerships
Disadvantages– Loss of direct control– Need to ensure performance of partner– Higher cost of private finance– Cost of risk transfer– Start up costs
Local Authorities - Unlocking Finance Through
Property
Conclusions
Unlocking the potential of Local Authorities’ property ownerships is of key importance in terms of:– Releasing money for reinvestment– Promoting regeneration and economic
developmentThe new financial regime gives Local Authorities
considerably more scope for active asset management.
Local Authorities - Unlocking Finance Through
Property
Conclusions (Cont..)
There are a range of possibilities ranging from specific transactions, leveraged borrowing, complex public private partnerships and portfolio transactions.
The type of transaction depends on political priorities and market opportunities.
