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Insights and Research
Urban Renewal: Quarterly Update Urban Renewal: Quarterly Update
Insights and Research
Urban Renewal – Key Concepts
Definition Urban Renewal is the revitalisation of
large, underutilised brownfield sites
typically owned by Government, through
large-scale, mixed-use redevelopment.
Stakeholders Government, as the landowner Government delivery authority Capital partners Master developer and plot developers Future occupants and visitors Community groups
Key Drivers Social changes: steady population growth
in capital city CBDs, increasing
concentration of employment in CBDs,
decline in number of persons per
household Changes in the urban environment:
limited land supply in CBDs, congestion &
lack of adequate public transport, availability of previously industrial sites
Regulatory changes: rezoning to shift
land to highest/best use, densification
policies and housing affordability policies
Major
Benefits
Increased employment during long
construction periods Increased tax revenue New housing supply Improved environmental outcomes
Key Risks Constant change in vision and masterplan
Underestimating project complexity
Balancing commercial and community
interests
Stakeholder governance and
communication breakdown
Checklist for Success
Clear project vision
Vision shared by land owner, developer and Government
Community informed and engaged
Recognition of project complexity and risk
Developer commensurately rewarded for risks
Place creation and civic infrastructure
Planning process transparent and predictable
Regular communication with stakeholders
Introduction
This Emerge Capital Quarterly Research series examines the
increasingly important urban renewal market in Australia.
This is the first of three issues that examine key aspects of an
Urban Renewal framework for developers.
Urban Renewal projects are large, complex real estate
developments. They involve the transformation of under-
utilised brownfield sites, typically located in inner city
locations and owned by government. Developments are
typically mixed-use and have a long gestation period from
acquisition to construction commencement.
The number of Urban Renewal projects coming to market in
Australia has accelerated drastically in the last decade and
shows no signs of slowing. With an estimated $71 billion of
projects coming to market in the next three years, Urban
Renewal will be one of the main drivers of pipeline for the
property industry.
Delivering successful Urban Renewal is a complex task and
needs to be planned through an appropriate framework that
considers a range of different elements, including:
1. the overarching Urban Renewal Strategy;
2. the methodology for Project Identification;
3. a project specific Bidding and Negotiation strategy;
4. Appropriate Capital Structuring; and
5. Effective Project Delivery.
In this issue, we will examine in detail the first two elements:
Urban Renewal Strategy and Project Identification.
Darling Harbour Live, Sydney
December 2014
Insights and Research Urban Renewal – Quarterly Update
Urban Renewal Strategy
The size, scale and complexity of Urban Renewal often mean
that projects have very long timeframes and involve a large
number of stakeholders with varying interests. As a result, a
well-defined, overarching strategy is necessary for developers
to:
define how best to capitalise on internal core
competencies;
drive internal commitment; and
focus regional plans towards wider Urban Renewal
objectives.
Urban Renewal projects are by
nature complex and risky. A
well-considered strategy is
crucial for developers wishing to
enter the sector.
Key considerations for an Urban Renewal Strategy to address
include:
What is the Opportunity?: The potential opportunities
and risks involved in entering Urban Renewal need to be
clearly defined to understand the potential reward of
entering this market.
Internal Capabilities: Potential entrants need to
understand their competitive strengths to know where to
focus their efforts and/or build capability.
Financial and Capital Requirements: Urban Renewal
projects are long-dated and require significant capital
commitments from the bidding phase through to
construction. Proponents have to consider their ability to
fund the project at all stages of delivery.
Target Projects: An understanding of internal
capabilities, along with the future pipeline and
competition will allow proponents to focus their activities
on the projects most likely to succeed.
Key Partners: Successful project delivery will require
effective partnership with both internal and external
stakeholders. The strategy needs to identify potential
partners who will commit to future operationalisation.
Organisational Structure: As most Urban Renewal
projects are mixed use projects where the sum of the parts
deliver something more than the whole, a traditional
“siloed” business unit structure may need to be reviewed.
Urban Renewal Strategy
Key Steps for Proponent:
Source: Emerge Capital Partners
Marina Bay, Singapore
What this means for
Developers: Urban Renewal Strategy is essential for
market entry to manage risk and prevent wasting of
resources.
Capital: Important to assess own strengths to secure
appropriate development partners.
Governments: Proponents with a well-articulated
Urban Renewal Strategy are more likely to be stronger
candidates in tenders, as they will have a better
understanding of their organisational strengths and
how they fit the project in question.
Plan to Operationalise
Define a future operating model to support business development and project delivery, with clear roles and accountability.
Align Organisational Goals
Engage with key internal stakeholders, potential external partners and subject matter experts to ensure alignment with the strategy and funding capability.
Set an Urban Renewal Vision
A concise urban renewal vision and set of objectives to guide future thinking, priorities and to define what the proponent stands for.
Insights and Research Urban Renewal – Quarterly Update
Project Identification
The next crucial phase for proponents is to identify projects
that align with their Urban Renewal Strategy. Since projects
vary tremendously in size, complexity and time scale,
developers need to be judicious about selecting projects that
best match their skills and funding capabilities.
Key questions that need to be addressed at this stage include:
Which projects are available?
How should we prioritise and filter the pipeline?
Who are our likely competitors on bids?
Urban Renewal project bids are costly, require dedicated
resources and significant outlay for the concept design. They
are also highly competitive as a result of a limited supply of
developable inner city land. For these reasons, it is
recommended that proponents develop a deal filter to identify
which opportunities present a high probability of winning and
align to the core competencies identified through the Urban
Renewal Strategy.
What this means for
Developers: Viewing urban renewal opportunities
through a deal filter ensures resources are concentrated
on the most relevant opportunities.
Capital: Deal filters are as important for investors as
they are for developers, and should take account of the
investor’s required returns, risk tolerance and
timeframe.
Governments: Understanding developers’ and
investors’ project selection criteria is useful for
running the bid process and setting development
conditions.
Investment Filter Criteria
Source: Emerge Capital Partners, 2014
Does the business unit possess
any competitive advantage
over our competitors?
Will costs associated with the
bid be reasonable and within
the bid budget?
Is there certainty in the
planning process and
outcomes? Have other risks
been considered?
Does the development plan
focus on growth for the
business unit?
Is the project located in a
geography that aligns with
business unit strategy?
Is there alignment between the
counterparty and the business
unit?
Does profit emerge in line
with medium term Business
Plan requirements?
Does the project address a
current portfolio rebalancing
requirement?
Are there other additional
benefits that can be derived?
Is the project of appropriate
scale and have all
infrastructural complexities
been considered?
Do we have the right resources
to commit to the project across
all stages of delivery?
Does the market display sound
fundamentals?
Growth Geography Market Fundamentals
Portfolio Mix Counterparty Timing
Scale & Complexity Auxiliary Benefits Planning Liability
& Overall Risk
Competitive Advantage Delivery Availability Reasonable Bid Costs
Insights and Research Urban Renewal – Quarterly Update
Australian Urban Renewal Pipeline – Dec 2014
(Projects with end value >$1bn)
.
Source: Emerge Capital Research
Please Note: While every effort has been made to ensure complete and accurate information in the diagram above, estimated date to market and project end values are
subject to change. The information provided in the above diagram is intended to provide general guidelines only
Insights and Research Urban Renewal – Quarterly Update Urban Renewal – Quarterly Update
Current Projects Update (Projects with end value >$1bn)
Project Location Developer Total
Value
Expected
Completion Update
Sydney Mirvac $8.0bn 2030
Nov 2014 – Complete sell-out of the first release of
apartments in the first building at Green Square Town
Centre: more than $150mn was exchanged over 2
days.
Sydney Lend Lease $6.0bn 2022
Nov 2014 – The Wynyard Walk – a bridge allowing
>20,000 pedestrians to reach Barangaroo from
Wynyard station, has begun construction.
Sydney Lend Lease $2.5bn 2019
Aug 2014 – Lend Lease signs a conditional agreement
to develop, build and sell a luxury hotel to Jerry
Schwartz, and to be operated as Sofitel by Accor.
May 2014 – Construction commences for the
convention, exhibition and entertainment venues.
Sydney Frasers $2.0bn 2016
Nov 2014 – Unilodge, a specialist student
accommodation provider, will offer 237 apartments at
Central Park. It is expected to open in Feb 2015.
Sydney Mirvac $1.1bn 2017
Jul 2014 – Locarno, the first precinct within Harold
Park is complete.
Brisbane Lend Lease $2.9bn 2026
Nov 2014 – Lend Lease has called for expressions of
interest in South Yard, the next residential stage at the
Showgrounds. This is four months ahead of schedule.
Melbourne Lend Lease $4.5bn 2021
Nov 2014 – Lend Lease has submitted plans to build a
$600mn complex of 1,070 apartments to mark the end
of development at Victoria Harbour.
Melbourne Quarter Melbourne Lend Lease $1.6bn 2024
Late 2014 to early 2015 – Staged construction
planned to begin
Melbourne
Beck
Property
Group &
Probuild
$1.5bn 2025 Nov 2014 – Preparation of the area for construction
scheduled to commence.
Adelaide
Renewal
SA (Invitation for
Offers)
$1.0bn 2025
Aug 2014 – Bowden’s largest land release since
renewal began in 2012 to be offered to developers.
Land will accommodate up to 3 or 4 apartment
buildings between 4 and 8 storeys.
Perth
Leighton
Properties
& Mirvac
$5.3bn 2020
Nov 2014 – Kings Square achieves key milestone of
reaching its highest point in construction.
Sep 2014 – Wellington streetscape upgrades from
Milligan Street to King Street commenced.
Perth Lend Lease $1.0bn 2021 2015 – Expected commencement of construction.
Perth MRA
(Invitation for
Offers)
$2.6bn 2017 Nov 2014 – Works progressing to construct inlet and
public realm at Barrack Street Jetty.
Source: Emerge Capital Research
Insights and Research Urban Renewal – Quarterly Update Urban Renewal – Quarterly Update
Global Spotlight: King’s Cross, London
Project Characteristics
Developer/Asset Manager Argent
Land Owner
King’s Cross Limited Partnership (Argent 50%, London & Continental Railways 36.5%, DHL Supply Chain 13.5%)
Principal Contractors BAM, Carillion, Kier
Site Area 27 ha
Project Value ₤3 billion (A$5.5 billion)
Office Space 3.4 million sq.ft
Retail Space 500,000 sq.ft
Residential Units 2,000 units
Hotel 91 rooms
Expected Completion 2020
Source: Urban Land Institute
King’s Cross is a major Urban Renewal project in central
London, located on the site of former rail yards and industrial
facilities. The site benefits from its connection to six London
Underground lines, two regional train stations and an
international train station, however it has entailed significant
challenges for the developer in terms of heritage, place
making and community consultation.
King’s Cross – Planned Redevelopment
Place Making
From the early stages of the project, the developer recognised
the importance of place making for the success of the project.
Prior to redevelopment, the area was fairly dilapidated, and
featured some of the lowest commercial rents in central
London. The developer and master planner have addressed
the place making challenge through a significant open space
provision, with around 32% of the site area dedicated to public
squares. Ground plane activation is also key to the place
making strategy, with separate ground floor units providing a
significant retail and dining component. Securing the
University of the Arts London as one of the first occupants
was also important in positioning the precinct as a vibrant,
creative and artistic area.
Vision and Flexibility
Before drafting a master plan, the developer outlined its vision
in Principles for a Human City. While they remained
committed to fulfilling this vision, it was recognised that the
master plan needed built in flexibility to deal with changing
market conditions in a project with a circa 20 year timeframe.
This need was recognised by the planning authorities, with
approval for the master plan given in terms of “total
permissible area”, which allowed for trading between land
uses to retain the ability to accommodate change if necessary.
Land Partnerships
Argent entered into an innovative ‘joint collective ownership
acquisition and development’ agreement with landowners,
where the land was to be valued following planning approval
and completion of the Eurostar station at St Pancras. At this
point Argent had the option to acquire the land or enter into a
50/50 partnership. This ensured that Argent was incentivised
to maximise the value of the scheme, and allowed the
landowners to continue occupying the land until the new rail
link made redevelopment attractive.
King’s Cross – Granary Square
Community Engagement
Community consultation was given high priority, with the
developer attending local community forums around 40 times.
Heritage was an important consideration for the site, and the
developer worked closely with local councils, the Greater
London Authority and English Heritage to ensure satisfactory
outcomes.
Early Successes
Occupancy of the precinct began in 2011 when the University
of the Arts London moved into the Granary Building, helping
to establish the redevelopment as a creative precinct. In
January 2013, Google announced that it would move its
London offices to Kings Cross, with the new headquarters
being built through a development fund through.
According to the developer, rents for both commercial space
and residential units in Kings Cross have outperformed
expectations.
Source: Urban Land Institute
Insights and Research Urban Renewal – Quarterly Update Urban Renewal – Quarterly Update
Emerge Capital Partners
Emerge Capital provide real estate and infrastructure advisory
services to corporate, government and institutional clients.
We help our clients develop and execute strategy at a
corporate, fund, portfolio and project level.
Our advisory approach is underpinned by technical financial
analysis to provide pragmatic implementable advice for our
clients.
How can we help?
We have developed significant expertise in the urban renewal
sector, providing advice to developers, government and
investors on high profile urban renewal projects.
We help developers by providing:
Strategy and support for complex bids;
Business unit strategy, capital models and corporate support; and
Project delivery assistance, including independent
reviews and financial analysis.
We help governments by providing:
Concept stage advisory including feasibility analysis, business case development and market sounding;
Complex bid management and advisory services; and
Development oversight, including independent project reviews, financial analysis and project renegotiations.
We help investors by providing:
Pipeline analysis and opportunity identification;
Consortium formation and complex bid management;
Investment oversight, including independent project
reviews, financial analysis and forecasting.
Contact
Tim Frogley Emerge Capital Tel +61 2 8277 9200
Managing Partner 3 Hickson Road www.emergecap.com
[email protected] Sydney 2000
+61 431 566 790
Emerge Capital Group and/or its affiliates (“Emerge Capital”) are not making a recommendation or providing advice as to the benefits and or risks of many the investment. Emerge Capital are merely a conduit of
information with no such recommendation or opinion attached. Before entering into a transaction, investors should determine the suitability of any investment with regard to their particu lar circumstances and independently (in consultation with their professional advisors) examine the special risks (maximum loss, currency risk, etc.) and the legal, regulatory, credit, tax, and accounting consequences. This document does
not make any recommendation or disclose all related risks. No assurance can be given that any investment objective will be achieved or that investors will receive a return on their capital. Risks include the loss of
some or all of the investor’s investment. This document is issued by Emerge Capital, solely for information purposes and for the recipient’s sole use. It does not constitute an offer or invitation to enter into any type
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from the use hereof. This document may not be reproduced, in part or in full, without the written consent of Emerge Capital. Copyright © 2014 Emerge Capital Group and/or its affiliates. All rights reserved.