Scrutiny on the bounty

Traditionally this is how it uses this precious asset: public sector cleans up brownfield site and puts it up for sale; developer buys site at knockdown price, builds on it and makes fat profit from uplift in value. But now new ways of partnership-style working are emerging that leverage funding via the private sector and potentially offer a better business deal for the public sector. Regenerate puts three deals under the microscope

The fee developer

What’s the deal: KUD International is taking the role of what it calls master developer, basically a fee developer. That means the company takes a fee for working out a site in partnership with other developers on an open book basis. Its fee is a fixed-line item, arranged up front, and comes from the returns from the development itself rather than from council coffers. KUD takes the risk of delivering the scheme, but ultimately lays some of that risk off onto some of the developers working alongside it. The master developer offers guarantees to underwrite the whole development.

Where is it being applied? The £2bn Silvertown Quays is a 60-acre development in London Docklands, that will provide an aquarium, designed by Terry Farrell and Partners, some 5000 homes, and leisure, retail and commercial space.

Who is KUD’s partner there? the London Development Agency.

Why would the private-sector partner do it? James Alexander, managing director of KUD International, says: “We’ve been convinced the traditional property development-led model is not bringing out the best in regeneration, particularly for the public sector. We don’t have the traditional measure of success – we did a waterside project in Long Beach, California, where we measured our success by the extent to which footfall increased – it went up tenfold, giving the city economic benefits. So the city of Long Beach wants to keep on working with us as a result.”

Pros for local authorities:

• The local authority is protected from asset stripping – returns go to the council.
• Local authority benefits from uplift in property values through evolution of site.
• The masterplan can be carried through, and on larger sites individual parcels of development will be contiguous, rather than piecemeal.

Cons for local authorities:

• Public sector shares the risk in that there is no immediate crystallisation of value.
• The relationship demands more commitment from the public sector. They have to be prepared to work with the developer over the plan period. That input demands trained staff, who have to be paid, so there is a cost.

The investment fund

What’s the deal? East Midlands Development Agency and English Partnerships have joined forces with commercial partner Igloo in a 50:50 public/private partnership called Blueprint. The fund, which is the first of its kind and was launched at the end of September, is aiming to deliver social and economic benefits within a commercial framework. It will hold investment property and carry out development across the East Midlands, putting the emphasis on socially responsible investment. It has an existing portfolio, purchased from EMDA and EP, of around £30m of land and buildings.

Where is it being applied? The fund owns buildings across the East Midlands. The land is in Derby, Leicester and Nottingham (shown left), three of the six East Midlands urban priority areas (the others are Corby, Northampton and Lincoln). The initial regeneration portfolio has a completed development value of around £500m.

Why is EMDA doing it? EMDA finance director and Blueprint chairman John Tatham says: “By stimulating and delivering sustainable and well designed development, the partnership will help us better to deliver our social and economic agendas.”

Pro for the Regional Development Agency:

• It is bringing people and money in to regenerate the whole region.

Con for the Regional Development Agency:

• It has to be prepared to share control over its operational activities.

The Joint venture

What’s the deal? Contractor Willmott Dixon Homes has formed a private development arm, called Widacre Homes, which operates in joint venture with registered social landlords. The joint venture puts together a business plan to generate a land value, developing sites with a mix of affordable and private housing. Risk and reward are shared on an open book basis. The housing association may bring land to the venture, but it doesn’t have to as Widacre has the expertise to find and buy sites.

Who is Widacre’s partner? Widacre has had a joint venture with Circle Anglia for more than a year. Their first scheme is EastSide in Bow, east London, under a special purpose vehicle.

Where is it being applied? EastSide is a 234-unit mixed-tenure apartment scheme being built on a brownfield site owned by Circle Anglia partner, Old Ford Housing Association.

Why would the private sector partner do it? Fraser Wells, managing director of Widacre Homes, says: “This is the way forward in creating a synergy of private and public housing.”

Pros for housing associations:

• It brings private development expertise without the business overheads.
• Profit provides cross-subsidy for the housing association’s portfolio of managed properties.

Cons for housing associations:

• It needs a lot of time and resources to make it effective.
• The HA needs to know how to accommodate commercial processes within their organisation.