Regeneration projects: revival instinct

In the wake of the financial crisis, local authorities have had to adopt a more creative approach to regeneration. Property Week assesses how they are tackling it and what they are working on.

The proposition from local authorities to the private sector used to be simple: we bring the land; you bring the finance and expertise. Not any more. Now, local authorities are deploying a whole arsenal of weapons in the charm offensive to woo developers - if they are not using their ability to borrow at good rates from government to invest or develop themselves.

Why? Because they have had to since the financial crisis, which not only prompted many developer partners to pull the plug on projects but also brought us the era of austerity.

The general rule of thumb appears to be: the less active the property market, the more creative the deal must be.

“Make them interesting and different,” says John Tatham, senior director, GVA Investment Partnerships. “And they need to be of a scale to make them worthwhile.”

In some cases, we have to help the local authorities understand what it is they want - Tony Martin, CBRE

Tatham knows all about this. He set up the Siglion JV between Sunderland City Council and Carillion where he was finance director until his move to GVA earlier this year.

With three very different sites accounting for around £100m of development, the Siglion deal is now producing its very first office block on the former Vaux Brewery site. Now Tatham hopes GVA can help Wirral Council pull off the same stunt. It is advising the council on the regeneration of the New Ferry area, which was hit by a gas explosion earlier this year.

These large-scale projects have obvious appeal to private sector partners, but for Tony Martin, head of investment advisory at CBRE, ensuring the expectations of interested parties are aligned is the key to successful public-private JVs.

“The important thing is: does each party understand their objectives and are each party’s’ objectives consistent with each other? We spend a lot of time trying to understand what it is the local authorities want and, in some cases, helping them to understand themselves what the benefits of a partnership would be, what they expect the private sector to bring to the partnership and what they need to retain control over,” he says.

Mismatched ambitions

Aligning the values of two very different stakeholders isn’t always easy. Some of the earliest attempts were public private partnerships (PPPs) created as local asset-based vehicles. One such partnership was the Croydon Council Urban Regeneration Vehicle (CCURV), which involved the council and John Laing Group and was wound up in October 2016 just eight years into the intended 28-year partnership.

“They got the first scheme off the ground but then it seemed to stall,” says Stephen Armitage, the former director of real estate advisory at CCURV. “It was a combination of the council having to look at its operational portfolio in the light of the crash taking a long time [to recover] and John Laing being quite ambitious about bringing forward a development programme.”

The experience at Croydon highlights one of the biggest potential stumbling blocks in any public-private relationship: mismatched ambitions.

“In the early days, the public sector thought the point was to make the private sector do stuff they didn’t normally do,” says Tatham, who worked on his first PPP deal in 2005. “As the market started to tighten in the run-up to Northern Rock, the public sector partner would be keen to accelerate, while the private sector wanted to rein it in.”

There’s a divide between how developers approach development and how authorities approach it - Paul Swinney, Centre for Cities

The two parties still often have different aspirations, says Paul Swinney, principal economist at Centre for Cities.

“There’s obviously a bit of a divide between how developers approach development and how authorities approach it,” he says. “One of the key things that local authorities need to understand is what developers are looking for when they’re considering an investment. Obviously, the first thing is having a project with strong fundamentals that will generate a profit.”

Vociferous opposition

Partnerships can also come a cropper if they fail to meet the aspirations of those most affected by regeneration schemes. This is a particular problem in London boroughs, where some schemes have fallen foul of angry residents.

“Some of the concern is that the local authority or housing authority may be taking a back seat in the process while the developer takes the driving seat,” warns Armitage. “There needs to be greater contact and communication between the housing authority and the residents affected. That could be an issue that comes out of Grenfell.”

Armitage cites the example of Earls Court. Residents in West Kensington and Gibbs Green don’t want to see their estates demolished and have been vociferous in their opposition.

Tatham suggests this is a very London-centric problem, caused by the unrelenting inflow of overseas investors looking for property as an investment. It isn’t a problem Muse Developments has encountered, claims joint managing director Matt Crompton.

“Everything we do is area-based regeneration: mixed use, urban and town centre. In every single opportunity, we are changing the place for the better. We have neighbourly issues but in terms of general opposition or confrontation, we don’t find it. We consult well, we consult early, we do engage and we do listen.”

Successful partnerships also tend to be adept at marketing, says Swinney. “That’s why something like Mipim UK is actually quite important - you can have the best projects in the world but if you’re not telling people about them, that’s going to be a challenge,” he says.

In short, the whole process is akin to walking a tightrope. However, great things can be achieved when partnerships keep their balance - and sometimes when the authority goes it alone or partners with another authority.

Property Week examines six of the more innovative approaches to regeneration:

Margate

In stark contrast to many councils, Thanet District Council has recently expanded its economic development team in recognition of the benefits that an increased focus on regeneration can bring for Margate and its surrounding area.

One of the lynchpins of Margate’s recent renaissance is the Turner Contemporary. The art gallery, which was designed by David Chipperfield Architects, opened in 2011 and was funded by the local council, Kent County Council and the then South East of England Development Agency. It recently welcomed its two millionth visitor.

Off the back of the Turner, Margate has developed a reputation as an artistic hub and has tempted many young artists away from London, with its sky-high studio and residential prices. According to Chris Wells, leader of Thanet council, the town “fizzes with artistic energy”.

A report published earlier this year revealed the extent of the creative economy in Margate. It found that there had been an 84% growth in creative businesses in the district and that Margate had seen a 71% increase in artist studio numbers over the past four years.

A survey conducted as part of the study found that 60% had moved to Thanet since the Turner gallery opened in 2011, and 67% had come from London.

Dream restoration

The restoration of Dreamland, Margate’s iconic theme park, has also played an important role. In 2013, Thanet District Council took the decision to compulsory-purchase the whole site after it had sat vacant since 2003.

The theme park attracted private sector investment and after an £18m restoration, it reopened in 2015.

By this point, Thanet council had already successfully attracted £1.89m from the Coastal Communities’ Fund for the second phase of restoration, which started last year and will see the former Sunshine Café and cinema foyer restored.

Unusually, design and project management was carried out in-house by the council and Dreamland was officially reopened, for a second time, by local star Tracey Emin in May.

As a result of these initiatives and more, house prices have rocketed 36% in the past five years. “Anecdotal evidence suggests some of this is driven by a London market of house buyers, with people relocating and working closer to home,” says Wells.

“Many are entrepreneurs setting up local businesses in the area. Both groups realise that they can benefit from a superior coastal location within easy reach of London.”

While the council can take a substantial share of the credit for Margate’s renaissance, factors outside the authority’s control have been equally important.

Most significant was the arrival of the HS1 train line, which cut the London-to-Margate travel time to 80 minutes.

Sunderland

In Sunderland, the regeneration push is being led by a local asset-backed vehicle (LABV) - a form of joint venture between public and private partners - that has been established with a specific remit and combines the skills and resources of the local authority, a contractor and a developer.

The city council’s motive in setting up the LABV was to develop out certain key city centre sites, in particular the site of the former Vaux brewery. Even before the financial crisis, the site had been the focus of a very public spat between Tesco, the council and the then urban regeneration company (URC) Sunderland Arc. Tesco wanted to put a superstore on the site. The council and the URC disagreed - vehemently.

Just as a solution seemed likely, the crash hit, meaning that the Vaux site looked set to remain undeveloped. In a bid to avoid this, the city council decided to go out to tender to establish a partnership that could attract investment into the city. The result is Siglion, a partnership between the council, developer Igloo and contractor Carillion, which was established in 2014.

“We have very specific priorities, which are to instigate regeneration in the city through design-led development,” says John Seager, chief executive at Siglion. “So we are creating markets - we’re creating an office market, extending the residential market, and we’re providing new leisure places as well. It’s a holistic approach to regeneration.”

Siglion has five sites allocated, including significant council-owned assets, the most advanced of which is the Vaux. The first, publicly funded phase of the project is now under construction and comprises a 60,000 sq ft speculative office building with potential for leisure and ancillary uses on the ground and mezzanine levels.

“The first phase of Vaux is coming out of the ground now and is due for completion in June 2018,” says Seager. “We are just about to fully launch all the branding and marketing on that and are already having discussions with potential occupiers. It is a bit early to tie them down yet - it’s a speculative building in the middle of a city centre that hasn’t had much development for some time.”

Thankfully, none of the funding for the project is dependent on EU programmes and Seager adds that the high-profile troubles at Carillion shouldn’t have any impact on Siglion’s plans. “Carillion’s original investment forms part of the partnership,” he says. “It isn’t required to continue investing in Siglion to make it a success. We’re still able to deliver what we proposed.”

Birmingham

No one can doubt the scale of Birmingham’s ambitions. Over the next 15 years, the city plans to deliver upwards of 51,000 new homes, 750,000 sq ft of city centre office space and a further 300,000 sq ft of offices in the wider area, enabled by a pipeline of around £4bn of transport, public realm, facilities and other infrastructure projects.

It is a tall order but Birmingham City Council, which is the largest authority in the UK and among the largest landowners, is pulling out all the stops to make it happen.

“We are using our land assets, putting them into joint ventures or development agreements to enable sites to work for investors and developers to bring forward major schemes,” says Richard Cowell, assistant director, development, planning and regeneration, at Birmingham City Council.

“It’s about working in partnership,” he says, citing the Hermes-backed Paradise development in the city centre as an example.

The council is also making the most of the latest generation of enterprise zones (EZs). Its EZ covers 39 sites in the city centre and the council, alongside the Greater Birmingham and Solihull Local Enterprise Partnership (LEP), is investing £1bn to ready the sites for development.

Under their agreement with government, the council and the LEP are able to fund the works in a novel way that has since been widely adopted.

We are using our land assets, putting them into JVs or development agreements - Richard Cowell, Birmingham City Council

“With the latest EZs, it isn’t so much about the benefits to potential occupiers; it’s all about the ability to borrow against future uplift in business rates,” says Jonathan Turner, partner, development consulting, at Cushman & Wakefield, who advised the council on the business model for Birmingham’s EZ.

“The approach has been adopted UK wide. It’s the most powerful funding delivery tool that the government has given cities in decades.”

A key example of the scale of their ambition is the nascent Smithfield development.

The council is helping to prepare the 17 ha site and is currently out to tender - advised by Cushman & Wakefield - to find a development partner.

More than half the site, which has been earmarked for a £1bn leisure-led mixed-use scheme, is owned by the council, something that Turner says makes it highly attractive.

“Smithfield is probably the largest public-sector-owned site in a prime urban area in Europe,” he says. “It’s such a substantial ownership and that is significantly attractive to the market. The selection is being run under the OJEU rules, and that’s ongoing, but we’ve had a very good response - it’s a once-in-a-generation opportunity.”

Manchester

In the North West, developers of eligible projects can apply for a loan from The North West Evergreen Fund, an innovative partnership between 16 local authorities that aims to unlock commercial property and regeneration projects across the region.

The Evergreen website claims the local authorities partners are “all committed to investing in the transformation of the North West long-term”.

Key sites are tied together by public realm works and a planned revamp of the train station. Another important piece of Stockport’s redevelopment jigsaw is Stockport Exchange, a mixed-use scheme that Muse Developments is delivering in partnership with the council.

As well as backing from councils including Manchester City Council and Lancashire County Council, the fund - which is managed by CBRE’s debt investment advisory team - also receives and distributes contributions from the European Regional Development Fund.

So far, Evergreen has provided £200m of finance to support developments with a combined value of over £1bn. One of Evergreen’s beneficiaries is Allied London, which acquired a £16.5m senior loan in August to finance its St John’s scheme in Manchester.

St John’s will create a new 1m sq ft neighbourhood on the old Granada Studios site. The mixed-use development will include office, hotel, leisure, residential and flexible work and event space complemented by independent shops, cafés and restaurants.

When the loan was announced, Andrew Antoniades, head of CBRE’s debt investment advisory, said: “St John’s is an incredibly dynamic scheme and underscores the need for Evergreen to kickstart developments that will have wide reaching socio-economic benefits to the region.”

As The North West Evergreen Fund shows, collaboration between local authorities can be just as fruitful as collaboration between private and public partners.

Stockport

Unlocking opportunities to develop housing is a priority for local authorities but many are also focusing on other sectors, such as retail and leisure. Stockport Borough Council is one of them.

It has taken a proactive approach to regeneration by funding the Redrock leisure scheme and purchasing Merseyway Shopping Centre, which it has earmarked for redevelopment.

The scheme will combine a multistorey car park, a Holiday Inn Express and 375,000 sq ft of office space. The first of the office buildings is fully let to Stagecoach and musicMagpie with ground-floor retail spaces also fully occupied.

The council has attracted a disproportionate amount of funding from sources such as the Heritage Lottery Fund, the Coastal Communities Fund and the Arts Council, which it has been able to plough into regeneration. But in many instances that money has also been used strategically to attract investment from the private sector.

“Where councils are investing in assets in their own town centres, for both commercial return and to help kickstart regeneration, I think that works very well,” says Matt Crompton, joint managing director of Muse Developments.

Strong communication between the developer and local authority is key to a successful partnership, he adds. “It’s down to the people you are engaging with,” he elaborates. “Have you got senior-level buy-in? Does everybody share the vision?”

That vision also needs to be realistic, he says “You need flexibility so that the end of the process does not fix you into a straitjacket. If the world changes and the dynamics of a long-term partnership have changed, then the relationship should allow you to make changes too, for example changing the mix of uses or the speed of delivery.”

Cornwall

The county’s heritage sits at the heart of Cornwall’s regeneration strategy. In the past 10 years, heritage regeneration schemes worth more than £73m have transformed towns and villages across the area.

“Cornwall’s distinctiveness is a selling point and a positive for us in terms of regeneration, housing and jobs. Cornwall is quite a special place and our regeneration focus has been around those areas,” says council leader Adam Paynter.

The Jubilee Pool lido in Penzance is a case in point. The restoration of the 1920s facility was funded by the council and a major investment from the Coastal Communities Fund, but the public expenditure sowed the seeds for private sector investment. “It aids the further regeneration of the seafront and the harbour,” says Paynter.

“It’s kickstarted regeneration and given private investors the confidence to invest in a place where they can see that the trajectory is upwards, rather than going down the pan.”

Cornwall’s distinctiveness is a selling point and a positive for us - Adam Paynter, Cornwall Council

One major cloud on the horizon for Cornwall, however, is the UK’s departure from the EU - and with it the county’s access to its various economic development and regeneration funds.

Because of its relatively weak economy, Cornwall has had access to far more EU funding than anywhere else in the south of England - and over the past 20 years has taken advantage of the fact. The loss of those funds will be felt acutely.

“I think we’ve probably done more work on [regeneration strategy] than any other area of the UK, purely because we have benefited more than any other area,” says Paynter.

“Our strategy is very much about working with government. It’s about saying ‘this is what we’ve achieved with EU funding and this is where we need support’.”

In 2015, a devolution deal for Cornwall was agreed with central government and Paynter believes that will prove a useful starting point for negotiating further investment to replace EU funds.

“The EU funding was great but it came with huge number of strings attached,” he says. “If we can have a single pot, we will be able to better target funds to get the best results in terms of jobs and investment.”

The loss of EU money will certainly be a blow to Cornwall, but if the county can persuade central government to replace what is lost, it might actually end up in a better position.

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