Public/private sectors working in partnership

What is driving the public sector to enter into more development partnerships with the private sector?

The key reasons for this changing landscape are:

• Enlargement of the European Union – public funding has been directed away from some of the significantly deprived areas of the UK and towards new EU members.
• The Lyons and Gershon reports – these initiatives have given local authorities in particular greater responsibility to efficiently and effectively manage their surplus and/or non-operational assets as a means of delivering their wider socio-economic objectives.
• Change in private sector outlook – a number of institutional funds are developing regeneration skills to enter the marketplace. These new funds are looking to partner with the public sector on a strategic, long-term, area-wide basis rather than cherry-picking individual schemes. Examples are: English Cities Fund, Igloo Regeneration, Cibitas Investments and UK Regeneration.

Funding sources in the public sector are fast dwindling. The European Regional Development Fund is no longer a major factor, and regional development agencies are changing their focus away from property-based projects to a more skills-based agenda. Driven by the gap that this has created, the private sector is increasingly bringing its skills and funding to the party. The public sector injects its asset base and the private sector matches it either through its existing land or through equity/funding and skills/resource participation. This is a fast-growing trend within area-based regeneration and provides real motivation for the investors.

Who provides the land?

Whereas the private sector will often bring the money to the table, it is the public sector that generally brings the land. Many of the brownfield sites in these arrangements are either in public sector ownership or can be bought through the use of compulsory purchase powers. These powers are key to ensuring a comprehensive approach to regeneration and in providing the opportunity for landowners to work in partnership with the preferred developer.

How do these partnerships work?

Here’s a recent, groundbreaking example:

Eversheds advised Arnold Laver & Company and Bolsterstone in relation to their partnership arrangements with Chesterfield council to bring forward the comprehensive redevelopment of the A61 corridor in Chesterfield. Arnold Laver and Bolsterstone brought their development expertise and funding to the table, while the council provided CPO powers. Both parties were aiming for quality, high design and sustainability. All these ingredients added up to comprehensive site assembly and delivery.

This project is particularly innovative as the public sector in this arrangement holds no land in the development area so demonstrates the inter-sector trust and confidence to bring forward a significant area-wide redevelopment.

The partnership approach allows the public sector to maintain control over key elements and to influence the design-led competitive process to create a new urban village. Delivering this project is expected to take between 10 and 15 years, showing the commitment of both parties to create sustainable communities.

What does the Treasury think?

The Treasury has been engaged in significant outsourcing projects by three regional development agencies. All of these have seen the management of the RDAs’ property portfolio outsourced to the private sector. For example, the East Midlands Development Agency engaged Igloo Regeneration to manage its investment and development property portfolio while still retaining control to ensure that its wider objectives as a regional development agency are delivered.

We have seen the same approach adopted by One NorthEast, the Northwest Development Agency and Advantage West Midlands. Eversheds has advised all three agencies on these projects and we are seeing a great deal of interest from other RDAs to follow suit.

What are the benefits of this approach?

The bottom line for the public sector is effective regeneration, making the most of its considerable asset base. By engaging the private sector in this manner it is assured that value will be driven by the asset base in line with its own objectives. Further, the public sector knows that the private sector’s return is inextricably tied to return on investment. The latter is therefore incentivised to drive up the value.

Investors and developers are hungry for this opportunity as it means they can take a role in developing area-based strategy plans while taking advantage of the value capture/profit share derived from these partnership structures.

What else do developers need to know?

Developers need to know that although the public sector will be content to leave the day to day management to the experienced developer, it will not want to relinquish its control over strategic direction and key issues such as design, sustainability and creating a high-quality public realm.

If these projects are correctly structured then the public sector can procure development partners on an efficient basis without the need to rely on the full European Union notification process. This can avoid considerable delays.