Local Authorities - Unlocking Finance Through Property

1. ACES Presidential Conference‘Meeting the Challenge – Making Our Assets Work’Unlocking Finance Through PropertyStephen ClarkSenior Director - CB Richard Ellis September 2007

2. Local Authorities - Unlocking Finance Through Property Topics to be Covered • Rules and Powers • Borrowing and Investment • Funding Opportunities • Sale • Lease • Project specific arrangements • Strategic asset management arrangements • Asset backed partnerships

3. Local Authorities - Unlocking Finance Through Property Why do Local Authorities hold Property? • Operational/Service delivery • Financial - capital receipts and income (investment) • Economic development, regeneration and control

4. Local Authorities - Unlocking Finance Through Property Rules and Powers • To hold property • To invest in property • Prudential borrowing • Treasury management strategies • Practical implications

5. Local Authorities - Unlocking Finance Through Property Options for Raising Finance • Sale • Sale and leaseback • Borrowing against future receipts and revenue savings • PFI • Public private partnership (partial disposal) • Asset backed partnerships

6. Local Authorities - Unlocking Finance Through Property Borrowing Against Future Receipts or Revenue Savings • How certain are the receipts/savings • Very low cost of borrowing (PWLB) • Accounting treatment - MRP • Risk transfer • Local Authority office accommodation • Tenant purchase

7. Local Authorities - Unlocking Finance Through Property Case Study 1 - Perceval House (London Borough of Ealing)

8. Local Authorities - Unlocking Finance Through Property Case Study 1 - Perceval House (London Borough of Ealing) • Passing rent £2.65 million per annum • Lease expiry – September 2006 • Dilapidations dispute - Landlord claimed £16 million • Council desire to invest in improving its premises • Purchased for £33.5 million (1/4/04)

9. Local Authorities - Unlocking Finance Through Property Project Specific Partnerships • Redevelopment of an existing asset • Usually involves densification • Requires high values from enabling development • Can achieve risk transfer • Can introduce high level urban design and regeneration

10. Local Authorities - Unlocking Finance Through Property Case Study 2 - Swiss Cottage (London Borough of Camden)

11. Local Authorities - Unlocking Finance Through Property Case Study 2 - Swiss Cottage (London Borough of Camden) • £20 million leisure centre funded entirely by enabling development • Masterplan originally designed by Sir Terry Farrell • Part of a wider regeneration initiative • Projected to release over £0.65 million per year revenue funding • This enabled LBC to fund the refurbishment of the adjacent listed library

12. Local Authorities - Unlocking Finance Through Property Project Specific Partnerships - Other Examples • Oxford Castle • Brighton Convention Centre • Royal Borough of Kensington and Chelsea Estates Initiative

13. Local Authorities - Unlocking Finance Through Property Oxford Castle

14. Local Authorities - Unlocking Finance Through Property Brighton Convention Centre

15. Local Authorities - Unlocking Finance Through Property Royal Borough of Kensington and Chelsea

16. Local Authorities - Unlocking Finance Through Property Strategic Asset Management & Development Partnerships • ‘Partner’ selected to unlock potential across a specified portfolio e.g. an industrial estate • Land drawn down as opportunities are identified • May include a management contract • Partner receives a priority return plus overage • May guarantee a level of income • Active management includes purchase of interests and undertaking development • Arrangement could last 5 to 15 years

17. Local Authorities - Unlocking Finance Through Property Strategic Asset Management & Development Partnerships • Benefits • Incentivised management • Ability to raise finance for active management • Harnesses private sector skills and resources • Economic development • Disadvantages • May pay away part of future growth • Tied to one partner

18. Local Authorities - Unlocking Finance Through Property Asset Backed Partnerships • Involves a portfolio transfer to a new vehicle • Council/RDA holds less than 50% interest (off balance sheet) • Limited partnership structure most financially effective (tax treatment) • Long term arrangement - 30 years or more • Private sector partner manages the estate • Council/RDA receives cash, loan note or combination

19. Local Authorities - Unlocking Finance Through Property Asset Backed Partnerships • Benefits • Incentivised co-investment and management • Greater flexibility of action • Risk transfer • Economic development • Improved financial performance • Removes local political interference

20. Local Authorities - Unlocking Finance Through Property Asset Backed Partnerships • Disadvantages • Loss of direct control • Need to ensure performance of partner • Higher cost of private finance • Cost of risk transfer • Start up costs

21. Local Authorities - Unlocking Finance Through Property Conclusions • Unlocking the potential of Local Authorities’ property ownerships is of key importance in terms of: • Releasing money for reinvestment • Promoting regeneration and economic development • The new financial regime gives Local Authorities considerably more scope for active asset management.

22. Local Authorities - Unlocking Finance Through Property Conclusions (Cont..) • There are a range of possibilities ranging from specific transactions, leveraged borrowing, complex public private partnerships and portfolio transactions. • The type of transaction depends on political priorities and market opportunities.