ACES Presidential Conference ‘Meeting the Challenge – Making Our Assets Work’ Unlocking Finance Through Property Stephen Clark Senior Director - CB Richard Ellis September 2007

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

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

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

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

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

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

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)

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

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

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

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

Local Authorities - Unlocking Finance Through Property Oxford Castle

Local Authorities - Unlocking Finance Through Property Brighton Convention Centre

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

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

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

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

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

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

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.

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.