EXPO REAL: Power attracting inward investment

The UK’s public sector is becoming more creative and open minded in terms of its interpretation of ‘best value’ but developers must keep their side of the bargain regarding speed of delivery in order to be met with open arms, according to an expert panel at Expo Real in Munich. Councils and government bodies have historically been criticised for taking the money and running and selling up when considering the future of publicly owned assets, rather than considering the long-term value of a developer’s proposition and working alongside them.  At the session, ‘The Power of UK and Ireland Cities and Attracting Inward Investment’ Eoin Condren, director of joint ventures at U+I said he had been frustrated in the past by the lack of imagination from government-backed partners. “Sometimes, especially if it is a public/private partnership with local government they have to go through an Official Journal of the European Union process to show best practice and they can get bogged down in price whereas value is actually a lot more than that,” he said. In instances where public sector partners had been less set in their ways there had been a greater benefit for all stakeholders according to Condren. “It is it a case of fixing what is potentially broken in places and getting people into homes and into work again, having those business rates coming through within mixed-use areas. In the plast couple of years we have seen huge headway in attitudes and that is where we are seeing the best rewards,” he said. While there has been somewhat of a change in approach by the public sector, Sir Edward Lister, chairman of Homes England warned that for developers to maintain the trust of state-backed institutions they must deliver on their promises, and fast. “There have been some big changes and there has been quite a number of sites that have come forward now whereby there have been deferred payments for the land and other methods [to share risk with the private sector],” he said. “The other side of the coin is the speed of delivery. Yes, the Treasury accepts best value is wider than cash but you have to show real speed of delivery and only then can you start selling these other alternatives [to just cash] and indeed that is what several developers have done.”    Targeting opportunities In Scotland, with a devolved parliament, the public sector arguably has even greater power to tweak its proposition to developers. According to Peter Noad, project manager for business infrastructure at Scottish Enterprise, the institution had been targeting opportunities in the private rental sector (PRS) in particular to boost delivery of housing. “We can engineer the offer so that we have seen a lot of activity in the build to rent market in Edinburgh and more recently in Glasgow as well as some development emerging in Aberdeen. On top of that the government has put a great deal into place-making, compared with other parts of the UK, as well as accelerating planning decisions. There are things we can do in Scotland, unlike elsewhere in the UK, and be a bit more subtle in terms of how we deliver that package,” he said. One of the UK’s biggest weaknesses is its inability to create a scale of opportunities to attract large-scale investment. This is particularly true in the country’s regional markets and, to lure them in, pipelines must be lined up more creatively so that capital of a greater scale can be deployed. “The PRS market for example, there just isn’t really generally the capital going into it because of the lack of scale,” said Lee Sheldon, head of funds and indirect real estate at Addleshaw Goddard.  “I am working on a deal with a pipeline of 2,500 units at the moment that has attracted capital from all over including Singapore and the US but that is only because of its size. For institutional investors, doing deals in the low £10ms just doesn’t work but there is plenty of capital waiting in the wings when the opportunities are there, as has been seen in the logistics and student accommodation sectors.” For some investors, this means they bypass the UK altogether when scouring the globe and determining their strategy. “A lot of capital is incredibly footloose at the moment and they start by talking about Europe, and then it’s where in Europe and then which country and then which cities in that country. And when it comes to the point of scale it can be really challenging. For an awful lot of global funds they can’t do big enough deals in the UK unless they buy a super regional mall to move the needle for these global funds,” said Mat Oakley, head of commercial research at Savills. “In the regions the same is actually true for many of the UK REITs which probably should be more active but aren’t as they can’t find big enough deals.” Lister’s warning Sir Edward Lister, chairman of Homes England, has warned that developers must up their delivery of housing or risk punitive measures from government. The former deputy mayor of London for policy and planning told delegates in a keynote address at EG’s UK and Ireland stand at Expo Real that the government had never done more to tip the balance in favour of developers but that, if they did not step up, rhetoric around the sector may change. “There is significant government support at a level not seen for a long time. Watch this space,” he said. “Unless production goes up government will take further action to drive [housebuilding] forward. Some will be good but some could be bad for the industry. [Politicians] know their political survival is about getting those numbers up, and they will do it one way or another.” Lister highlighted the forthcoming introduction of additional stamp duty for overseas buyers as an example of government’s willingness to bring in measures to address perceived issues in the industry. “It always surprised me that it took so long,” he added. “There is a frustration because they feel the industry is not building fast and there is a view gaining more ground within government and among ministers and civil servants that the industry has gotten everything it’s ever asked for but not produced the numbers… every time a developer says ‘my financial model doesn’t let me build’ it sees people tense up.” Homes England has been addressing issues of market failure when it can stimulate housebuilding through providing debt or equity, and Lister said the public sector has been selling land to developers but also buying schemes that had become “stuck”. “The government has always tried to release land, sometimes successfully, sometimes very slowly. A lot of government land is in the wrong places… The government is also now acquiring land and taking positions in order to move stuff on. It should never be in competition with a developer but for that which is stuck and needs to be moved on.” The panel ■ Eoin Condren, director, joint ventures, U+I ■ Sir Edward Lister, chairman, UK Government’s Homes England and senior adviser to the UK Department of International Trade Capital Investment team / former deputy mayor of London ■ Peter Noad, project manager, business infrastructure, Scottish Enterprise ■ Mat Oakley, head of commercial research, Savills ■ Lee Sheldon, head of funds and indirect real estate, Addleshaw Goddard ■ Damian Wild, editor, Estates Gazette (chairman)   To send feedback, e-mail david.hatcher@egi.co.uk or tweet @hatcherdavid or @estatesgazette