A future prospect? Local asset backed vehicles Louise Whitehouse 0121 456 8304 louise.whitehouse@mills-reeve.com 8
Local authorities are currently sitting on billions of pounds worth of saleable property assets, prompting the Government to look into this issue, knowing active management of these assets would create more opportunities for local government. Funds could be generated that would reduce councils’ financial dependence on central government, and property investors would realise the potential profit from buildings and sites that have not previously been available to them. Newly-acquired finances could be recycled to provide long-term funding for much-needed regeneration projects. Selling property assets to bring in receipts is nothing new, however now the Government is encouraging retention of assets and the forming of partnerships with the private sector in property development joint ventures called local asset backed vehicles (LABVs). The idea behind such ventures is that the council places some of its property assets into the vehicle and the private sector puts in money equivalent to their value. Councils’ property portfolios could be developed this way to bring in more value from retaining their assets than from selling them off. Background The concept was first introduced in a government consultation last year on the proposed city development companies (CDCs). It considered the ways in which LABVs and CDCs could interrelate. CDCs are based upon the concept of urban regeneration companies, although it has been suggested that these companies be created on a much larger scale. They will have an increased geographical coverage, a broader range of functions, an increased profile and leverage over greater budgets. Consequently, their aim is to push forward regeneration projects across cities. One conclusion was that the companies themselves should be local asset backed vehicles as these vehicles are also able to hold assets, a feature that is lacking in CDCs. Clearly it would be advantageous for all of the players involved in regeneration projects to be under one roof. It is more efficient to combine the public and private sector in vehicles such as these LABVs. By acting as a corporate vehicle, it places such regeneration work at the heart of the market, attracting investors. How do these vehicles work in practice? These LABVs have been piloted, albeit not within the local authority sector, but by regional development agencies. One such agency, EMDA, has created the vehicle Blueprint, a partnership between English Partnerships, EMDA and Morley Fund Management’s Igloo Regeneration (as the private sector partner). This vehicle has been developed to stimulate and deliver sustainable development to assist the East Midlands to deliver their social and economic agendas. It is a device through which partners, urban regeneration companies and other public sector bodies can deliver their physical regeneration plans. The concept of CDCs, on the other hand, has been piloted within the local authority sector, an example being Creative Sheffield. This company combined the functions of the agencies Sheffield One, Sheffield First for Investment and Cultural Industries Quarter to form one single economic development company for the city. To combine all of these functions provides a single entry point for interested parties, therefore making the project that much more efficient and attractive to investors. A successful project has been the development of St Paul’s Place, providing business and leisure facilities in the heart of the city. Any concerns? One concern, which has been voiced by David Hughes (the regional director for North East, Yorkshire and East Midlands at the national regeneration agency, English Partnerships) is that the councils would be “putting all of the family silver in a single pot”. Some councillors may baulk at this concern as, should the vehicle invest in a few unfortunate property ventures, then this could have serious repercussions for the local authority. A factor that may be slowing down progress is the delay over the introduction of JESSICA, which is a new European Commission (EC) backed investment tool for urban areas. JESSICA allows European Union member states to invest a portion of their structural funding in urban regeneration projects, on which they will get a return. JESSICA-approved funds could be channelled through an LABV, however the Department for Communities and Local Government is still seeking more clarity from the EC about how JESSICA will work in practice, and has yet to implement the tool in England. Jonathan Bull-Diamond, a partner at King Sturge, has commented that “this vehicle can create a lot of value for both the council and the developer”. At present councils are a step behind the regional development agencies as they have not yet piloted these schemes, although this may well change in the near future. • Local asset backed vehicles (LABVs) are a new concept to fund regeneration projects • LABVs could interrelate with city development companies to hold assets • They have been piloted by regional development agencies while CDCs have been piloted within local authorities • There are some concerns that will have to be ironed out • LABVs could be very advantageous for local authorities and developers 9