JESSICA in Implementation · Integrated Urban Development Concepts (INSEKs) National Co-Funding. Brandenburg Regional Promotional Bank (ILB) EUR 5m. GRANT. LOW INTEREST LOANS (maturity

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JESSICA in ImplementationJESSICA in ImplementationEIB JESSICA Task Force

JESSICA Networking Platform

Brussels, 4th March 2009

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I. Summary Status of Operations (2008-09)II. What we have learnedIII. Case studies

a) A Non-equity model - Brandenburgb) An Equity model – UKc) A project-driven model – Liguria

OverviewOverview

What you will hear.

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JESSICA in ImplementationJESSICA Networking Platform, 4th March 2009

I. Summary Status of Operations (2008-2009)

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The role of EIBThe role of EIB

EIB taking a leading role, alongside DGREGIO, in promoting and developing JESSICA in EU MS

SF Regulations specifically provide for EIB to act as a Holding Fund (on a not-for-profit basis)

Technical assistance and dissemination of best practice, based on established expertise in lending to urban renewal/regenerations projects across the EU

Providing complementary loan financing

How is EIB contributing to JESSICA?

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Key components:

Operational Programme

Planning, Policy and Legal Environment

Urban regeneration market (gap analysis) & JESSICA potential

Existing programmes / structures / vehicles

Possible partners / leverage

Possible pilot projects

Value-added?

JESSICA model & Implementation recommendations?

Short to mid-term action plan?

State of play in EU Member StatesState of play in EU Member States

JESSICA Evaluation Studies

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2008 an important year in advancing JESSICA (from a political, legal and technical point of view)

29 Evaluation studies initiated in 15 MS, 16 studies finalised (4 published thus far), 12 additional studies planned (2009)

MAs in 17 EU Member States working on JESSICA

several UDFs under development / in pre-implementation stage

6 HF MoUs signed in 5 Member States; negotiations +

First HF/UDF structures to be set-up in 2009!

Increasing number of thematic co-operations and networks

Strong JESSICA dynamics anticipated in conjunction with economic stimulus packages

State of play in EU Member StatesState of play in EU Member States

In summary (February 2009)

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II. What we have learned (so far)

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What we have learned (so far)What we have learned (so far)

Developing JESSICA architecture

Flexible interpretation of JESSICA (role) in different constituencies.

JESSICA operational environment and resulting implementation options varying significantly.

European CommissionERDF – DG Regio


Managing AuthorityManaging Authority

EU

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Holding Fund (« HF »), optionalHolding Fund (« HF »), optional

Urban DevelopmentFunds («UDFs»)


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PPPs SPVs

Loans, Guarantees, Equity

Integrated Urban Development Plans

Other(Public or Private)

Investors


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Developing JESSICA architecture

Flexible interpretation of JESSICA (role) in different constituencies.

JESSICA operational environment and resulting implementation options varying significantly.

Customised approaches needed!

Case-by-case configuration!




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Customised approaches & tailored structures

Operational environment: Structural Funds?Development challenges? Political priorities?Market gap / Promotional

strategy? IUD / Planning Environment? Project typologies / Financing

needs? Existing structures /

programmes / pot. Partners? Project development /

Implementation Capacity? Financial Engineering

experience? Legal & fiscal regimes?




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SF resources

Regional development challenges

Project typologies & financing needs

IUD strategies / Planning Environment

Financial Engineering experience

Existing structures / vehicles / partners

Legal & fiscal regimes

Market gap & Promotional strategy

Project development & implementation capacity

Political priorities

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Customised approaches & tailored structures

Implementation options: Political decision? Earmarking of SF? Co-financing partners? Fund architecture (HF/UDF)? Investment strategy? Fund management? Governance & monitoring? Financing Instruments? (Pilot) Project portfolio? Project promoters?




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SF JESSICA resources

Financing partners (public

/ private)

JESSICA financing instruments

(Pilot) Project portfolio

Fund management

JESSICA fund architecture (UDF/HF)

Investment strategy

Project promoters

Positive political decision

Governance & monitoring

structures

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Development of customised JESSICA structures in different constituencies, based on interrelated set of factors:

Consultative development of JESSICA required; Constructive co-operation of public sector actors at different level crucial

Top-down vs. bottom-up development

Scope of JESSICA widening (i.e. energy efficiency in housing)

Varying starting points for UDFs…

Banks as UDF vehicles?

Cities as UDF initiators?

UDFs beyond financing?

No blueprint for JESSICA! Replicability limited, but knowledge- sharing important, both on national and pan-European level!

Observations & success factors

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III. Case studies

A Non-equity model - BrandenburgAn Equity model – UK

A project-driven model – Liguria

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JESSICA in GermanyJESSICA in Germany- The case of Brandenburg -

EIB JESSICA Task Force,

Björn Gabriel



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JESSICA in GermanyJESSICA in Germany

JESSICA perspective: mainly regional UDFs (Länder). However, diversity in terms of strategy / stakeholders / instruments

State of play:

Brandenburg and Saxony: UDF to be operational in 2009

Hamburg City State and North-Rhine Westphalia: Concept development and feasibility study under way

Saarland and Rhineland-Palatinate: Strong interest, feasibility studies started / envisaged

Berlin City State: Feasibility study; Evaluation of options ongoing

Moreover: Strong Federal Government support (ExWoSt); KfW (national promotional bank) complementary equity fund for project co- financing; Good best-practice examples regarding integrated urban development

Customised approaches in the German Länder

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42 target areas / municipalities for urban development promotion (Federal and regional programmes, ERDF funds)

Decision to establish a pilot UDF to complement grant financing, and to be scaled-up over time

The case of Brandenburg – urban programmes

ERDF OP (2007-2013)

Convergence objective

EUR 115 Mio. available for sustainable urban development (P 4.1.)

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• Ministry of Economic Development (MW)

• Managing Authority

• Ministry of Infrastructure and Spatial Development (MIR)

• ERDF intermediate body

• Brandenburg’s urban development policy

• Investitionsbank des Landes Brandenburg (ILB)

• Regional promotional bank, 100% owned by the Land

• Brandenburg Municipalities (MUN)

• Local development plans; Project implementation

The case of Brandenburg – Key actors

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Projects Projects Projects Projects Projects


UDF Brandenburg: Fund structure / supply side

BUSINESS PLAN EC1828/2006 Art 43(2)

FUNDING AGREEMENT

EC1828/2006 Art 43(5)

ERDF

Managing Authority

EUR 15m

OP 2007-2013

UDF BrandenburgTrust fund operated by ILB

EUR 20m

15 INSEK Municipalities

(up to 100% of eligible project cost)

Integrated Urban Development Concepts (INSEKs)

National Co-Funding

Brandenburg Regional Promotional Bank (ILB)

EUR 5m

GRANT

LOW INTEREST LOANS

(maturity 10 yrs, grace period possible)

INTEREST BEARING

LOAN

ILB

MW

MIR

MUN

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UDF Brandenburg: Projects / demand side

Projects Projects Projects Projects Projects

15 INSEK Municipalities

(up to 100% of eligible project cost)

Integrated Urban Development Concepts (INSEKs)

Phase I (INSEK):Selection of quality integrated plans

42 target areas / municipalities for urban development promotion;

MIR call for INSEK proposals (guidelines provided); Inter-ministerial evaluation;

15 of 42 municipalities selected for possible UDF financing, based on the quality of their integrated urban plans (early 2008)

Plan components (projects) to be analysed in terms of their feasibility and revenue- generating potential (ILB/MIR)

Choice of suitable promotional strategy for project financing (grant or fund-based)

Phase II (PROJECTS):Project viability analysis

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JESSICA developed top-down, but …

Paired with a guided, competetive procedure as a possible way to identify projects within integrated urban development plans for revolving UDF financing.

Think big, start small! - gradual expansion of pilot fund structure and operations recommended (volume, partners, instruments, risks).

Federal / National level support and in information sharing & research considered a strong catalyst

UDF Brandenburg: Observations & conclusions

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JESSICA in WalesJESSICA in Wales

Brian Field



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THE NATIONAL CONTEXTTHE NATIONAL CONTEXT

Wales is recognised as one of the world’s first industrial nations.

Unfortunately, the country’s industrial heritage and more recent economic history has left it with areas of entrenched and profound deprivation.

Economic disadvantage has been compounded by market failure and market inefficiencies that have resulted in significant physical decay in some localities, and demand/supply imbalances for almost all property types.

Public sector intervention in regeneration in Wales has therefore been a necessity for many decades, but means much more than land reclamation and property development.

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REGENERATION IN WALESREGENERATION IN WALES

Defined as: Co-ordinated investment in activities delivering shared outcomes which enable a community – as a place, its people, and its social and economic prosperity – to fulfil its potential in line with agreed national, local and individuals’ priorities.

Policy agenda: To establish integrated and cross-cutting initiatives aimed at economic development and regeneration, particularly in areas of high deprivation.

The role of JESSICA in Wales is therefore to stimulate significant investment in « place » to complement investment in people and the economy in general.

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JESSICA COMPONENTS JESSICA COMPONENTS –– THE WELSH MODELTHE WELSH MODEL

UDF(including professional fund

manager)

Managing Authority Private Sector

Project A Project B Project C Project D

ERDF CASH* CASHInvestorLevel

FundLevel

ProjectLevel

*and land assets(?) invested at the project level or fund level. - subject to EC direction

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JESSICA COMPONENTS JESSICA COMPONENTS –– IN OPERATIONIN OPERATION

UDF

Managing Authority Private Sector

Project A Project B

ERDF CASH CASHInvestorLevel

FundLevel

ProjectLevel

Project B

Local Partners

Profits

ProfitsProfits

PropertyAssets

e.g. Municipality

e.g. Private Sector Developer

e.g. Other Public Agency

Etc

EquityProfits

Profits

Profits

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PROJECT SELECTION CRITERIAPROJECT SELECTION CRITERIA

Policy fit (WAG, WEFO, EU, EIB).

Existence of sustainable integrated regeneration plans.

Significant public sector ownership (WAG, Local Authorities).

Profitability (positive IRR).

Scale/attractiveness to the private sector.

Commitment at the project level.

Eligible and regulation compliant.

State of readiness.

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JESSICA BENEFITSJESSICA BENEFITS

Leverage major, long-term private sector finance and expertise

Catalysing investment in locations that would otherwise fail

Promote/foster financial sustainability/independence

Holistic approach to investment (i.e. beyond money- making)

Public sector objectives protected by fund structure

Responsiveness to change (relative to PPP projects)

Risk reduction through area uplift over the long term and cross subsidisation between a portfolio of projects/sites

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SUMMARYSUMMARY

While traditional gap funding delivers social and economic returns, a JESSICA supported UDF would deliver social, economic and financial returns.

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JESSICA in ItalyJESSICA in Italy- The case of Liguria -

EIB JESSICA Task Force,

Gianni Carbonaro



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THE ITALIAN CONTEXTTHE ITALIAN CONTEXT

URBAN REGENERATION INSTITUTIONS AND MARKET• Highly diversified experience / capability in the country• No standardisation of procedures – regions in charge of territory • Wide variety of integrated plan procedures, but

• fragmentation by gov’t level and through project cycle• analysis of financial viability generally under-emphasised

FUNDING INSTRUMENTS (UDF Candidates)• Bank lending (tradition for public-led local development) • Few dedicated equity instruments (need to adapt existing ones)

URBAN PROJECT VEHICLES (Examples)• PPPs• Fondi Immobiliari (operating as project implementers)• STU (Società Trasformazione Urbana)

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THE LIGURIA OPERATIONAL PROGRAMMETHE LIGURIA OPERATIONAL PROGRAMME

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LIGURIA LIGURIA –– initial and current proposalsinitial and current proposals

Region highly vulnerable to decline• Still suffering from historical heritage

(heavy industry, harbour, shipbuilding)• Demographically unbalanced (aging, population decrease)• Focus on attraction investment essential

Initial Task Force suggestions• Genoa as high tech / university pole• Fund for deprived urban areas• Mature-age attraction fund for coastal cities

Managing Authority’s final orientation• UDF for development of Genoa as high-tech pole, including

• New buildings for engineering university at Erzelli technology park• People-mover to new site• Business incubators in technology park• Residences / facilities for students and researchers

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INTERDEPENDENCE SOURCES INTERDEPENDENCE SOURCES -- USESUSES

“SOURCES”“SOURCES” “USES”“USES”

• ERDF “Competitiveness”• Public regional development funds

(e.g. FAS – Fund for under-used territories)• Public and private In-kind

contributions (land & property) • Private sector equity co-investment• Funding from banks• …..

• InstrumentsLoansEquityGuarantees

• EligibilityERDFStudent accommodationResidential buildings……

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THE PROPOSED FUNDTHE PROPOSED FUND (structure and amounts illustrative)(structure and amounts illustrative)

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JESSICA and the RecessionJESSICA and the RecessionEIB JESSICA Task Force

JESSICA Networking PlatformBrussels, 4th March 2009

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CONTENTS OF PRESENTATIONCONTENTS OF PRESENTATION

I. The Current Crisis and JESSICA instrumentsII. Practical advice

a) Achieving Faster Deliveryb) Adapting Operational Programmesc) Structuring Projects and Programmes

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The Crisis and urban regenerationThe Crisis and urban regeneration

The roots of the crisis• The roaring nineties and the generous early century• Exuberance in investment and excessive leverage• Summer 2007 – the sub-prime problem• Summer-Winter 2008

from subprime to financial to aggregate demand crisis

• In recession – how deep and how long? Impact on urban regeneration

• “in simple terms it means that lenders won’t lend, borrowers can’t borrow, builders can’t build and buyers can’t buy”

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JESSICA instruments JESSICA instruments in recessionary times in recessionary times ……

JESSICA instruments are (mostly) supply-side tools• Limited impact to fight demand collapse in the short term…• …but may play a relevant role in a long-lasting recession

Why bother? Two reasons:• See that JESSICA core long-term objectives are not compromised

by the current recession • Contribute to alleviate the recession

Contrasting implications…• The discreet charm of grants may be boosted …• … but public-sector backed instruments are now more robust …• … and local investment is likely to play and increased role.

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Investors, funds and assets in recession Investors, funds and assets in recession Linkages with JESSICA instrumentsLinkages with JESSICA instruments

INVESTORS• banks, financial institutions

• institutional investors• funds of funds …

INVESTORS• banks, financial institutions

• institutional investors• funds of funds …

FUNDS• real estate funds

• infrastructure funds• ethical funds …

FUNDS• real estate funds

• infrastructure funds• ethical funds …

ASSETS• property assets

• PPPs• social environmental SRI assets …

ASSETS• property assets

• PPPs• social environmental SRI assets …

€

€

STRUCTURAL FUNDS

• European resources

STRUCTURAL FUNDS

• European resources

UDFs• specialised skills / focus

UDFs• specialised skills / focus

PROJECTS• benefits from integration

PROJECTS• benefits from integration

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JESSICA COMPONENTS JESSICA COMPONENTS –– HOW TO USE IN EMERGENCY HOW TO USE IN EMERGENCY




EU

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Urban Development Funds («UDFs»)

Urban Development Funds («UDFs»)

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Integrated Urban Development PlansIntegrated Urban Development Plans

Other (Public or Private)

Investors

Other (Public or Private)

Investors

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Holding Fund: rapid establishment prevents

de-commitment and may accelerate UDF

Managing Authority: flexible interpretation of

urban agenda in OP

European Commission: facilitate

use of instruments

UDF: construct for rapid delivery, use (also for

HF) in-kind contribution opportunities

Projects and Plans: construct for rapid

delivery, try to achieve risk-return balance suitable to changed

market circumstances

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Adapting to recessionary times Adapting to recessionary times

Amending Operational Programmes (if necessary)• Flexible interpretation of urban agenda

Achieving faster delivery• Fine-tune the balance between “ready-to-go” projects and

integration requirements• Work to reduce risk of automatic de-commitment• Land/buildings as in-kind contribution to accelerate delivery of

matching funds

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Structuring plans and projects Structuring plans and projects to fit changed market conditionsto fit changed market conditions

The “Urban” experience – come prima, più di prima• build on “Urban”-type investment principles - and more• flexible interpretation of integration in urban investment• focus on achieving sustainable outcomes rather than procedures

Construct plans and projects so that remuneration mechanisms• are less exposed to direct short-term demand• achieve suitable risk-return balance (e.g. focus on minimising risk)• have time profile to survive 3-5 years recession• can work with low private leverage in early phase

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CONCLUSIONS:CONCLUSIONS: a disturbing longa disturbing long--term demand proxy term demand proxy ……

(net household formation in EU(net household formation in EU--27 excluding migration)27 excluding migration)

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1990 1995 2000 2005 2010 2015 2020 2025 2030

Eastern Central Mediterranean High Fertility

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CONCLUSIONSCONCLUSIONS

The current recession• Not a short one, in some areas risk of a negative long-term cycle• Real estate (over)investment has triggered the recession

(beware of “investment gaps”!) • Weak aggregate demand likely to continue …

• aging in EU, re-adjustment to sustainable debt in US Shifting policy focus: from global failure to local response

• How? Sound investment in cities:• Assess risks for the long-term investor• Low cost solutions, efficiency in city operations• Spatial efficiency (e.g. compact cities)

Public sector likely to be the investment driver for a while …

UDFsUDFs againstagainst the the recessionrecession –– public public sectorsector--drivendriven toolstools to reto re-- establishestablish a viable a viable creditcredit environmentenvironment in the short in the short termterm, support , support

local local economieseconomies in the medium in the medium termterm and and assistassist longlong--termterm sustainablesustainable urbanurban transformation in Europetransformation in Europe

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www.eib.org/jessica

EIB EIB CONTACTCONTACT INFORMATIONINFORMATION

JESSICA Task Force

European Investment Bank100, Bvd. Konrad Adenauer

L-2950 LuxembourgTel.: +352 4379 83069Fax.: +352 4379 63099email : [email protected]

mailto:[email protected]

Documents

JESSICA in Implementation · Integrated Urban Development Concepts (INSEKs) National Co-Funding. Brandenburg Regional Promotional Bank (ILB) EUR 5m. GRANT. LOW INTEREST LOANS (maturity