The Spanish Property Market

'The Spanish Property Market – is the fiesta over for the time being?'

Imma Vall, Associate at Property Market Analysis (PMA), has been analysing the Spanish Property market for the past 5 years, and she demonstrated to us in her talk at our lunch on 10th December 2009 her mastery of the subject, giving us her ideas with flair and humour – but it was a bit like being a cheer-leader at a wake!

Spain has suffered more than most in the current recession, with unemployment approaching 19%, economy decline of 3.8% and running, and profound Budget deficits – it almost made an Englishman feel he was well off and should be thanking Alastair Darling. Imma had no doubt, therefore, that the fiesta was indeed over; it was now the time of the hangover which she could see lasting for 2 years at least. Addressing commercial property, there was an over-supply of offices and retail, with many prestigious schemes being mothballed whilst part-built – ghosts that may haunt the Spanish skyline for some time to come. For built-out vacant office space, lettings were a triumph for the letting agent, and of only partial value to the landlord as rent levels have tumbled c 20% and rent-free periods of 1 year in a 5 year lease were not uncommon. In retail, the larger Spanish companies were surviving, but their life-support comprised closure of units in Spain and reliance on foreign units; it was not uncommon for new shopping centres to open with 40% occupancy – 60% would be a dream. Consequently developers are in trouble across the board.

Against this depressing back drop at the 'real' level, there was a surprisingly ebullient investment market for anything of quality -- prime site, good tenant. Beyond that, darkness, but, for the farsighted the outline of genuine value. However, if you need finance, no way! Bank lending is effectively unavailable; even for a good client and a bank wishing to help, there is no possibility of syndication, and thus no deal. To those at the lunch, this was something of a surprise, as our impression was that Spanish Banks had come out quite well from the 'credit crunch'.

Looking to the future, Imma reminded us that the Spanish property market has always been more volatile than most. In large part this has arisen from the economic dominance of construction companies – give them money they will build, without much apparent consciousness of market cycles. In answer to a question, she thought that this might continue to be true in the future – a cautionary thought for a putative investor. However, for commercial space, particularly offices, Spain now had a considerable price advantage; present value levels, anyway in good locations, should, in principle, only go in one direction, but the date of going was not in next year’s diary. Nevertheless, we should not forget that Spain is often the point-of-entry of choice for the burgeoning South America economies.

Several questioners raised the problems of the Spanish Residential market. This, Imma agreed, is in greater gloom than commercial property, with a profusion of its own mothballed ghosts. There was little chance of the Government acting as ‘white knight’ because politicians have chosen to demonise residential developers. A 4-year recovery profile seemed the most optimistic possible.

Not the happiest of lunches, then, but in the best of company, and with a talented guide to the body under dissection – No! Not as bad as that! It will come back to life. Really! And perhaps the best time to buy a corpse is just before it revives.

Michael Mallinson

Visions of the Future

The Global Property Market in 2030 by Dr Angus McIntosh, Partner & Head of Research King Sturge – International Property Consultants.

It is one of the great human delusions that we should like to know what the future holds. Thus it was that suitably delusional Members and their entirely sane guests attended our Lunch on 29^th October to hear Dr McIntosh lift the curtain on what is in store for us.

Fortunately, perhaps, Angus was wise enough to tease us only with scenarios. He explained that he is participating in a project sponsored by the RICS Foundation that addresses the future under the title of his talk. The project is not yet completed, and he felt unwilling to reveal the precise level of the IPD Property Index on 1^st April 2030; rather, he thought it better to discuss some of the key issues that might drive that figure. He identified six such drivers:

Demographics. During the period under consideration, the global population would continue to grow, perhaps nearing a peak of 10 billion. The numbers alone will put enormous strains on the Earth’s resources, particularly of food and, as one questioner made clear, water. The rate of growth would, in itself, be significant, but so also would its distribution; would the areas of high growth also produce the ideas that would help them manage the strains they would feel; there are grounds for pessimism.

Economics. Would governments follow, and would their populations allow them to follow, policies that would reduce economic inequalities? If they did not, there would be increasing risk that excluded peoples would, under the pressures they would experience, revert to various forms of obscurantism, not least religious extremism.

Governance. The principles of governance followed would be a decisive factor. For all its weaknesses, the European Union is, conceptually, highly enlightened, seeking to follow a broadly inclusive ethos; compare that with the ‘gated’ and protectionist ethos in most parts of the World.

Environment & ecology. We are all only too aware of Climate Change. Whether or not governments can bring the issue under control, changes will occur that will be highly disruptive to current patterns of, particularly agriculture. These may or may not increase the tendency towards food shortages, but they will certainly complicate solutions. Under this head, Angus included the effects of pandemics in congested and mobile populations.

Technology. Potentially more positive, the pace of technological change continues to accelerate; by 2030 we shall have at our fingertips technologies that we do not presently dream of – he particularly drew out bio-technology and drugs. Will these inventions be divisive or inclusive?

Information. Information is growing very rapidly; because of the internet, its distribution can be seen as ‘flat’. It can be accessed by anyone from anywhere.

Using these ideas, Angus sketched three scenarios for each of Europe, Asia, America and the World:

EUROPEAN SCENARIOS

Bastion: Depression; Oil and resource collapse, social inequality, rising violence – cities like fortresses.

Web: The triumph of global corporations, economic success, but sustainability only a buzz word – urban sprawl, housing inequality, gated communities

Zion: Carbon neutral, high quality of life, equality under the law, culture and recreation dominate

ASIAN SCENARIOS

Orient Express: China dominates; Australia and New Zealand sustainable expert; India faces corruption; Infrastructure problems

United States of Asia: Mass urbanisation; Social unrest; Piracy of things and intellectual property is rife; only Singapore and Hong Kong lead the sustainable agenda

Broken promises: Increasing complex social problems in China and India, only Australia and New Zealand have clean technology; City planning in disarray and sustainability for many (in smog filled cities) very low priority

NORTH AMERICA SCENARIOS

Happy in the dark: Major worry over energy shortages and its repercussions on the whole of American society

Oil & Vinegar: There is a retreat behind borders and buildings. Social inequality & migration a major problem - political tension is rife,

Micro fanaticism: At a local level sustainable leadership dominates society and drives national governments.

GLOBAL SCENARIOS

Free trade and technology

VERSUS

Unrest and unequal societies, hence social tension - perhaps with religious fundamentalism

VERSUS

Knowledge, social values and a high quality of life. A sustainable future.

Because of the profundity of the issues raised by Angus, I have allowed my notes to be more extensive than usual. Whilst many of the points would have been in our consciousness already, to hear them drawn together so coherently was a privilege for us, and gave them perspective.

Michael Mallinson

Investing in the Indian RE Maket

Still too spicy for some?

A presentation by Sharad Gohil, Managing Director of Arpan Real Estate Limited (10 September 2009).

The main summary of the talk confirmed that Indian property market is not for an unseasoned investor as local partnerships and legal structures need to be watertight to protect an institution’s interests. Too spicy for some – probably!

General Overall Economic

Sharad confirmed that prior to previous thought; no market was immune to a global crisis that we have just been through. Earlier optimism that India and China will save us has not happened. This was an interesting point so when was the last time you heard the term ‘decoupling’ ?? (No such thing!)

Sharad mentioned the following key statistics:

• Main Indian stock exchange (SENSEX) down 40% from its Jan 09 high
• $6bn of foreign funds had flowed out of India during this period, reacting both to slowing growth and perceptions that the market was over-valued. Probably this was also a result of the west having their own problems as cash was needed to sort out their balance sheets!
• Indian GDP was 6% pa for 2008-09 fiscal year, but the World Bank is now forecasting 8% pa for 2010, ahead of China at 7.7% pa for the same period.
• Inflation was negative for the year to the end of June 2009, the first time in 30 odd years.
• 2009 onwards has seen more optimism and the Indian government has seized on this in planning $559 bn of infrastructure upgrades over the next five years of which 70% would be state funded, and the other 30% to be funded by the private sector. I would question whether this will all happen. India is running a massive budget deficit and this could have been just political posturing to get the Congress Party re-elected which happened.

For institutional property investment there are three main areas on which to focus:

1. Capital Structure

2. Due Diligence

3. Knowing your Partner

Sharad discussed each of these in detail.

1. Capital Structure

Joint ventures (JVs) tend to involve a local partner who is already the landowner. It is usually only the land which constitutes his equity contribution to the JV. The historic owner can make huge profits by just entering into the JV from day 1. Local partners are unwilling to dilute their stake or provide more equity in the downturn. In the boom times, pre-sales of residential were the general model. As this dried up and Indians began to lose their jobs, the residential market crashed overnight. Local developers have been adverse to cut prices/rents. The reason is a BIG EGO! They cannot be seen to be the first to slash prices as it is perceived to have a knock on effect on their other developments and their reputation.

A JV should be structured so that both parties put in a mix of capital and land to ensure that the building completes on-time as well as interests being aligned in the upcoming sales period.

2. Due Diligence

Indian Bureaucracy is a minefield. Legal due diligence can be long and protracted and proving title can be very difficult. Much of land has fragmented ownership as well as charges which banks use as collateral. A relic of the feudal system and numerous family disputes!

Foreign investors need a good local lawyer to unravel all the ownerships in an effort to obtain a clean title. The key pitfalls are:

• Floor Space Index (FSI) – This is a local law different by region, which mandates development densities. It must be checked in advance in case your 200,000 sq ft office block you were planning to build can only be a 50,000 sq ft office on the foot print of the land you have just purchased!
• Zoning – This is essentially planning, but many Zones have complex hidden covenants – eg timing and land restrictions that your lawyers need to be aware as part of due diligence.
• Arbitration – It is essential to have an arbitration clause in place with all contracts to settle disputes. It must be in a foreign jurisdiction such as Singapore or the UK. To take the matter to and Indian court could take up to TEN years!
• Title – It must be held at the local registrar.

3. Knowing Your Partner

Knowing your partner is the key to a successful development and investment. The local partner should have a better grasp of planning issues, neighbouring property disputes and local government liaison (involving brown paper envelopes?)

The local partner is usually the most powerful one. Investors should be under no illusion that they are the lead partner! There is the need to agree ‘tagalong’ and ‘dragalong’ rights so partners can exit together. The local partner should be a large scale developer with a good regional or national track record to greatly minimise the risk.

There is a definite need to further educate Indian partners further about Western business and institutional investment needs such as risk return profiles. Foreign investors were merely perceived to be expensive sources of debt!

Conclusion

There was a definite Indian property bubble (as with the rest of the world) and the weight of money chasing potential 35% pa plus returns added to this.

The Indian property investment market is a difficult market to understand and crack. However, returns are there for investors who want to be educated in dealing locally and are prepared to do proper due diligence and not just rush into deploying capital quickly with another eye looking at launching their next fund!

Property values are likely to still continue to ease across the board for at least another six months. When values improve, it will be on the capital market side first. Occupier demand will continue to remain weak for some time except for certain residential sectors (mass urban/suburban low to middle income housing).

There are good long term prospects for India generally based on a five to seven year strategy. However, a lot of reforms are required and the business and legal infrastructure needs to be much improved.

Shailendra Shah MRICS

Investment Fund Manager

Canada Life UK

Please, Mr Banker, can I have some more?!

Mr. Jonathan Rhodes, Director & Head of Valuation of Capital Markets at G L Hearn – Property Consultants -- gave an outstanding presentation to the LAI London Chapter, entitled: "Lending to commercial property -- 'Please, Mr. Banker, can I have some more?!'"

If I had been Jonathan, I might have said ‘no!’, and sat down to enjoy the rest of our lunch on 18th June. That was, after all, the essence of his message. However, he was also a bit like Elijah (well, despite my age, I don’t actually know what Elijah looked like) and, in an excellent and richly fact-filled talk he chose also to offer some prospects ‘no bigger than a man’s hand’.

The recent history of bank lending is a cautionary tale of over-optimism, lax control and cavalier attitudes to securitised risk. Whilst, in your scribe’s view, this will all have been forgotten by 2019, Jonathan traced out the present emaciated and over-stretched state of the banks; as he noted, Lloyds Banking Group (vice Halifax Bank of Scotland) and Royal Bank of Scotland are, in effect, the largest landlords in the UK. With two thirds of present debt expiring within 4 years, and with the 35-40% fall in values decimating LTV ratios the banks have been forced to take a cautious and phased approach to retrieving their exposure; this has frustrated the hoard of circling vulture funds. The banks’ position has been slightly relieved by low base rates, which has made re-financing a little more reachable. They are also helped by a strengthening investment market for the ‘best’ properties – the Germans being particularly active, but a wider range of Funds are starting to see good property as a ‘least bad’ haven. This has encouraged debt-equity swaps with a 3 to 5 year work-out.

Nevertheless, banks generally are seeking to de-leverage and recapitalise. They are also running scared about the riskiness of their clients and further slippage in values. As a result – ‘no!’ There are only about 10 possible sources of lending, and these are all highly selective and risk-averse: only those with the right property and who can show themselves to be the right borrower with a good track record need apply. If you get over this hurdle, you will get no more than 65% LTV and have to pay 200-250 basis points margin. Any property that can be seen as secondary, carrying undue risk or involving residential is poisoned from the word ‘go’.

Now for the cloud – a good thing because it promises rain! Wholesale money markets are starting to unblock, which will relieve the liquidity of banks’ stock. i.e. money. As the property market improves, the fundamentals of borrowing/lending will look more interesting. Perversely, this may be particularly so in the secondary market once fear of small business insolvencies recedes. Maybe soft rain will start to fall in 2010 at the top end and 2011 at the secondary. However, terms will remain tight, with hedging fees against inflation staying high because of governmental indebtedness; for a long time, banks will look for better terms for less risk. This mildly optimistic outlook carries one underlying assumption: that politically driven calls for ‘better’ regulation cause no material damage to the banking structure.

You will recall that the worshippers of Baal came to a sticky – perhaps investors in property - and banks, need to learn from their example and convert.

Michael Mallinson, London Chapter Scribe

The Death of Town Centres

Mr. Simon Quin, Chief Executive, the Association of Town Centre Management was our guest speaker for the Chapter luncheon 30th April 2009.

The Association of Town Centre Management (ATCM) is Europe’s largest membership organisation dedicated to promoting the vitality and viability of town and city centres. As footfall slumps, retail vacancies are soaring and investment ceases, and town and city centres are facing major challenges to be considered now in advance the recovery from recession.

Mr. Quin said that the current recession had seen a return to the concern expressed in the early 1990s about town centres becoming ghost towns as retailers cut back on their operations or, worse, were driven into receivership. This prompted a change of approach towards the concept of Town Centre Management, bringing together the respective resources of local government and the private sector to stimulate town centre revivals.

Initially the impact of Town Centre Management was little more than cosmetic, both retailers and developers being too remote from the process. The key change came with the introduction of PPG6, which opened the way to better, more effective town centre planning and management. (PPG6, through a sequential test, gave priority to the expansion of town centres at the expense of out-of-town developments.)

While post PPG6 there has been a renaissance in town and city centres, the principal criticism has been that town centres have now begun to look too alike ("Ghosts to Clones"), with national chains dominating the high streets and with too little exposure to locally owned retailers. Mr. Quin said that the reality was that consumers did want the familiarity of the national chains and there was insufficient demand to support more than a limited number of locally-based retailers.

Reducing the "sameness" of town centres and encouraging a more distinctive look for high streets was the challenge for the future, to create individual "brands". A lead could be taken from work done in downtown Washington DC, not historically a major retail destination but more residential-oriented. With the support of the US equivalent of the Association of Town Centre Management a programme was instituted to bring in shops and customers to the area as a destination worth visiting. Sampling of visitors has shown that area had moved up in popular esteem from "An experience worth having" to "A remarkable experience".

Mr. Quin suggested that creating such a judicious mix of residential and retail in downtown areas should be a good model for the future for the UK, given the problems being faced by retailers in the current straitened times. There are currently 135,000 vacant shops in the UK, 15% of the totality in the larger towns and cities and as much as 25 to 30% in smaller locations. In consequence just about all major developments in the planning stage are now on ‘hold’ pending a return to better times in retailing.

However, the future should not be about simply replicating more of the same by way of the shopping experience. Rather, the advent of the recession should be seen as a great opportunity to get away from the now prosaic and to create "remarkable" shopping experiences, Washington DC-style.

The basis would be to obtain the right mix between residential and retail, capitalising at least in part on revitalising town centre living at the expense of the suburbs and encouraging greater use of public transport instead of cars. The streets would be purposely friendly, some as though gardens, others perhaps covered.

In the residential/retail mix the greater residential content might mean somewhat fewer and possibly smaller outlets, this smaller scale opening the way to the return of local independent retailers, including specialist, even “quirky” shops. This could also support the need for more food stores.

There could be greater flexibility in shop opening hours to reflect disparate lifestyle issues. For example, younger residents will be likely looking for shops, restaurants/cafés and entertainment centres available throughout most of the evening, such that the hours operated by some outlets might have a distinct bias towards later opening and closing hours.

Developing new style downtowns will take time – perhaps 15 years - but will be much aided by the creation of the National Skills Academy for Retail. While it remains uncertain how far people would be willing to travel to a successful new local downtown, the likelihood is that it would be a magnet for outside shoppers.

Among the wider social issues to be considered is the changing population mix, with not only an increasingly percentage of the elderly but also a growing immigrant population. The new style downtowns have to be able to accommodate such differing lifestyle needs. For example, Muslim youths, teetotal, do not wish to have to share evening social space with drunken native teenagers.

Mr. Quin stressed that while he is optimistic about new downtowns, the initial process could be painful for developers, property owners and retailers alike. In June next year there is to be in London a World Congress on World Centres and Downtowns with widespread interest already and a prospective attendance of between 800 and 1,000 people.

In the Q & A session that followed Mr. Quin’s presentation he offered the following observations:

• A change of government next year, from Labour to Conservative, would certainly bring a different approach to planning, although the precise direction remains unclear. To the extent that Conservative policies can yet be influenced, the message to the Tories should be to maintain focus on town centre revival and on advancing public transport.


• The recent paper from the Adam Smith Institute arguing for getting rid of the Use Class Order was to be welcomed. Local authorities tended to be too restrictive and inflexible to change, seeking to discourage tenants such as banks and dentists on the grounds they did not fit in with the planning "vision", whereas there was clearly a need for such tenants in shopping areas.


• Market towns have been surviving the recession better, but conceptually they are already close to being downtowns.


• The growth in the Muslim community has led to ghettoisation in some areas, which has to be a matter of concern to be resolved. In Bradford one third of shoppers never go into the town centre, preferring their own local shops, but town centres should be welcoming to all.

Respectfully submitted,
Robert Gibson, Chapter Director, on behalf of the Scribe.

Will the Paris Office Market Escape the Slump?

Your scribe is a real old throwback; our lunch on 19^th March was on a lovely sunny spring day, overlooking Hyde Park and to also have a young lady talking about Paris made remembering to keep notes a bit tricky.

Fortunately, Catherine Kervennic, Partner at Property Market Analysis gave us a very engaging talk, with lively questions afterwards. Her answer to the question set was simple – ‘no’. After a period of denial last year, reality has struck; vacancies are rising, investment yields are rising and rents are falling. However, in Catherine’s view, whilst Paris will have its ‘slump’, it will not be as deep as those in London, the US and Germany for example. She gave four reasons for this. First, there is less over-supply. Secondly, investment yields had not fallen to such low levels, nor rents risen to such heights; there is therefore not so much ‘unwinding’ to be done. Thirdly, because rents are more modest, tenants, whilst shedding staff (this is, of course, less easy than in the UK), are not so keen to shed the accommodation as well; keeping it until better times return is more affordable. Finally, in response to a question, there is not likely to be much distress-selling. Banks in France are better-placed than in the UK or US and will not be so keen to pull the plug, and anyway office properties are less geared-up, with much being owned by secure overseas sources.

The Paris office market is divided into three very distinct markets: the Central Business District, La Defense and the various inner Business Districts. Each of these has its particular dynamics because each tends to have its own tenant base – La Defense with the large space-users for example. This will lead to some variance. La Defense is likely to have over-supply problems because development is still occurring. By contrast, the Western Business District, with its particular and attractive ambience is proving more resilient. Nevertheless, across the board rents are falling, and Catherine found it indicative that landlords are now less forthcoming on discussing any incentives that they have given.

The decline in rents is having an interesting side effect. In France, in broad terms rents are generally linked, at review, to the building cost index. At most times, this has favoured tenants, but it now works against them. There is a further statutory provision that, if the index has risen by more than 25%, the tenant may opt to use a market comparison, which many are now doing. She wondered if, after this experience, tenants will be so keen to use the building cost index.

As to eventual recovery, Catherine considers that, as Paris entered its decline later, it is likely to start its recovery later. She does not see the ‘busted flush’ of London’s financial ‘expertise’ as an opportunity for Paris to gain competitive edge – London still has a unique advantage. There are also issues about France’s political direction. Whilst the present government was elected on a platform of reform, and has taken some major steps, there are signs, if not yet of reverse, of a certain slowing. This will not assist the present lack of confidence amongst employers.

Despite that, Catherine pointed out that Paris bears a different relationship to France as a whole from London to Britain. Paris is the place to be for many businesses, are there are no equivalent alternatives such as Bristol, Leeds, Edinburgh etc. This dominance must underpin its long term strength.

To me, the image Catherine gave was of a temporary market decline such as those we have experienced several times during my career, declines that, whilst awkward at the time, pass without serious damage. One wonders if that is quite what is happening in London.

Michael Mallinson

What is Jessica?

Chapter members who attended the lunch on 19^th January heard our speaker Paul Aldridge reference 'Jessica’ and might have wondered what that meant.  Here is a more complete explanation from Paul.

"For those keen and hardy souls, I'm afraid to be the bearer of disappointing news - there are not yet any academic papers to hand that I am aware of for circulation."

"Jessica stands for 'Joint European Support for Sustainable Investment in City Areas,' and the essence of the position is shifting public sector funding towards a position of recoverability. In other words, it is proposed that Jessica stand as a 'loan,' but it doesn't have first charge over land in the manner that you'd expect with commercial debt finance."

"Exactly how this works in a tiered hierarchy of returns remains to be seen. A cynic could say if it's not first charge on the asset then it's pretty unlikely to be recovered, but it's just too early to see how it works. I hope that it moves us to a position of more economically sustainable development where the principles of equitable return on traditionally grant funded schemes are accepted, accepting that the risk profile for the parties may have to change to effect this shift. There are working papers in hand with WAG and NWDA, but the nuts and bolts of the project funding approach just aren't there yet."

See the Jessica information at the European Investment Bank web site: 

http://www.eib.org/projects/publications/jessica.htm.

"Jessica: A new way of using EU funding to promote sustainable investments and growth in urban areas." (Date: 05/09/2008)

A 6 page PDF file describing Jessica is viewable from the above site in several languages, with the English version here:

http://www.eib.org/attachments/thematic/jessica_2008_en.pdf

Delivering Regeneration - The Role of Local Asset-Backed Vehicles

How does a landowner without access to finance secure development of his land without either selling it or losing all control via a lease? This conundrum has been with us throughout my career and Local Asset-Backed Vehicles are the latest solution offered. Paul Aldridge and his firm, King Sturge,  are at the forefront of the initiative, and he came to our Lunch on 29th January 2009 to explain what they are up to; starting with a single project in 2002, they now have 30 or so in various stages of progress.

The idea is straightforward. The land is placed in a ‘vehicle’, usually a limited liability company in which the shareholders comprise the landowner, one or more development partners, who would be expected to bring substantial ‘seed’ capital, and perhaps a bank or other financier. The company follows proper corporate practice, with regular board meetings attended by directors nominated by the parties who bring expertise as well as exercising corporate responsibility. The vehicle is given a limited life, usually around 15 years. At the end of that period, the company is wound up, profits are taken and the land reverts to the landowner. During the development period the land is ‘drawn down’ by the developer in accordance with demand at a formula-driven price, developed and let.

As Paul emphasised, one of the keys to success will lie in getting the Memorandum and Articles in a shape that properly represents the wishes and interests of each party. There is usually a lock-in period of around 10 years, but thereafter interests can be sold, albeit that they may not be that liquid.

These arrangements are, in Paul’s view, particularly suited to public bodies with extensive or critical land holdings where they wish to bring about development in the interests of regeneration but they have neither the skills nor the financial backing to carry out development themselves; he illustrated this with the projects already under his belt. The general structure is flexible enough to allow for development elements of a ‘social’ or below-market nature, but, of course these must be counter-balanced by sufficient market development to meet the finance costs and the profit expected by each partner. The structure provides an entity that is generally eligible for grants, should these be available, and also wider public sector support; we talked of ‘Jessica’ and ‘Jeremy’, cash streams from the EU that are currently being rolled out for just such vehicles.

In answers to questions, particularly from members who were a little chary of public sector ‘partners’, Paul said that his experience was that their input was generally good. However, as well as getting the structure of the company right, it was also necessary to reach prior agreement on a proper business plan that the board could exercise its corporate responsibility in delivering. The timing of agreement on these matters was often politically sensitive, but in electorally ‘fallow’ times many authorities are quite capable of being business-like.

At the outset, the public body must, of course, select its partner or partners in a transparent and open manner that meets public sector ‘best value’ standards. If this is done properly, there is no difficulty in the chosen developer having exclusive access to the land covered by the vehicle throughout the period of the agreement.

Paul displayed not only mastery of his subject, but also considerable enthusiasm for the general concept. Whilst it is, primarily, a development tool, he is of the view that the content of that development was capable of considerable extension.

With the benefit of hindsight, I think that we did not question him quite strongly enough about the end of the agreement; that tends to be the time when chickens come home to roost. However, we all found the ideas Paul provided both interesting and potentially stimulating.

Michael Mallinson

[Ed. note: see the blog entry, below, for a link to the academic article referenced in Paul's presentation.]

LABVs: Grace & Ludiman Academic Article

Andrew Ludiman, AMWL Head of Consultancy at King Sturge, at our January 29, 2009 LAI London Chapter luncheon, referenced the following article, which is available for viewing at our web site, in the PUBLICATIONS section.

Title/Citation:

“Local asset backed vehicles: The potential for exponential growth as the delivery vehicle of choice for physical regeneration” by George Grace and Andrew M. W. Ludiman, partners at King Sturge LLP, Journal of Urban Regeneration and Renewal, Vol. 1, 4, 341–353 (Henry Stewart Publications: 2008).

Abstract:

“Nearly half the Regional Development Agencies (RDAs) in England have now adopted the use of local asset backed vehicles (LABVs) as a means to manage and/or develop their property holdings. In doing so, they have collectively invested over £400m of property in 50/50 partnerships with leading private sector regeneration experts such as Igloo Regeneration Ltd. Given the RDAs property holdings represent less than half a per cent of those held by local authorities (£1bn compared with £230bn), the potential impact on the regeneration sector if local authorities embraced this new approach to regeneration could be enormous in terms of leveraging in private sector finance, heralding a new culture of genuine partnership between the public and private sectors and catalysing a paradigm shift in the quantum and quality of physical regeneration in the UK.”