Funding Regeneration in an Age of Austerity

Back to the Future?

Chris Cook

Manchester 23rd January 2014

“21st Century problems cannot be solved with 20th Century solutions”

Resilience

Resilience - the enduring power of a body or bodies for transformation, renewal and recovery through the flux of interactions and flow of events

Resource Resilience – Natural Grid

Financial Resilience – Open Capital

Financial Resilience – Open Capital

Prepay – credit returnable in payment for value

Protocol – consensual interactive 'two way' agreement

Prepay

Tax

Tax Prepay

Tax Prepay – credit returnable in payment of taxes

Tax Return – 'stock' part of tally stick returned to Treasury

Rate of Return - rate over time at which stock is returnable for cancellation

eg Prepay £8 for £10 tax - £2 profit 25% pa rate of return

- not fixed - depends on existence & quantity of flow

Rental Prepay Credits

Credit returnable in payment for £1.00 of Rent

10,000 Credits sold for £8,000 give a 25% absolute return (£2k profit / £8k investment)

If Rent is £10k pa Rate of Return is 25% pa

If Rent is £5k pa Rate of Return is 12.5% pa

If Rent is £2k pa Rate of Return is 5% pa etc etc

Protocol - Capital Partnership

CustodianCustodian

InvestorsInvestors

OccupiersOccupiers

Managers

Prepay %

Rental

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A Capital Partnership is not an Organisation

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It does not own anything, do anything, employ anyone, or contract with anyone

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It is simply a framework agreement within which the stakeholders self organise

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Conventional property development is a transaction model: developer as middleman

DeveloperDeveloperLand

OwnerProperty

BuyerProperty

Buyer

£ £

PropertyBuyer

PropertyBuyer

£

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Borrow, Buy, Build and B...er Off...

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Financed by Equity (ownership) and Debt (from credit institutions)

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Capital Partnership offers a new approach to financing and funding

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Financing - for short/medium term, high risk development of new assets

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Funding - for long term, low risk use of newly complete or existing assets

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Financing : Land held by/transferred to a Custodian

LandLand CustodianCustodian

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Land Owners become Investors

LandLand

Land OwnersLand Owners

CustodianCustodian

Land Value

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Councils invest the value of planning permission

LandLand

CouncilsCouncils

CustodianCustodian

Value of Planning permission

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Contractors invest at least the profit margin

LandLand

ContractorsContractors

CustodianCustodian

Profit Margin

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Risk-Takers provide £ to pay Contractors’ agreed costs

LandLand

Risk-TakersRisk-Takers

CustodianCustodian

£

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Developers invest 'Intellectual Capital' of concept and services

LandLand

InvestorsLand-owners, Councils,

Contractors, Risk Takers

InvestorsLand-owners, Councils,

Contractors, Risk Takers

DevelopersDevelopers

CustodianCustodian

Value Value

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Capital Partnership creates a Rental Pool

CustodianCustodian

InvestorsInvestors

OccupiersOccupiers

Managers

Prepay %

Rental

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Rental Pools enable a simple but radical new funding option through Prepay

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Rental Credits – returnable in payment for property occupation

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Funding - Equity Release by creating Rental Pools from portfolios of completed houses

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Existing owner becomes the Custodian

Houses CustodianCustodian

Affordable index-linked rental is set

Houses

Occupiers

CustodianCustodian

Rental

Proportional Share allocated to Manager

Houses

Occupiers

Manager

CustodianCustodian

%

Rental

Balance of Rentals to Investors

Custodian

Investors

Occupiers

Managers

% %

Rental

Prepay Credits returnable in payment for rentals are created and sold to investors

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Example – Pool of 1,000 houses has affordable rents of £4m pa

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After (say) 25% for maintenance etc £3m pa is available for funding costs

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Debt: £3m pa will fund <£40m debt over 20 years at 5% compound interest

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Prepay

20 Years' rent = 60m x £1.00 credits: @ 50p raises £30m: Rate of Return = 100%/20 yrs = 5%pa@ 66.6p raises £40m: RR = 50%/20yrs = 2.5%pa

25 Years' rent = 75m x £1.00 credits: @ 50p raises £37.5m: Rate of Return = 100%/25 yrs = 4%pa@ 66.6p raises £50m: RR = 50%/25yrs = 2%pa

Rental Credits – value proposition for Investors not dissimilar to a REIT

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Except that, crucially, Rental Credits are returnable in payment for rent

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Rental Credits – as rental levels rise or fall rate of return increases or falls

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A Rental Pool will have a 'common bond' – geographic or otherwise

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Occupiers are natural buyers and acquire rental credits by paying rent in advance

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Occupiers who care for their property may receive 'Sweat Equity' rental credits

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21st Century Problem

Retiring Generation

-'long' of Property and 'short' of Care for themselves and their property

- poor returns on deposits (loans to banks)

Working Generation – burdened with bank property debt

Young Generation – long of Care but short of Property

21st Century Resolution

Retiring Generation

- exchange rental credits for care

- invests directly 'Peer to Asset' in rental credits

Working Generation – direct investment in rental credits replaces bank property debt

Young Generation – care exchanged for rental credits

21st Century problems cannot be solved with 20th century solutions.........

…....21st century solutions pre-date modern finance

Thank You

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