24th November 2010 http://www.futureoflondon.org.uk/2010/11/25/making-total-capital-work/

1. FUNDING AND DELIVERING
DEVELOPMENT AND RENEWAL
Making Total Capital Work
24th November 2010

2. Gerry Hughes
Executive Director
Planning, Development and Regeneration
Introduction
gerry.hughes@gvagrimley.co.uk

3. Agenda
08:45-09:45
Peter Bishop, LDA Group Director of Design, Development and
Environment and Deputy Chief Executive
09:45-10:30Q&A
Rick Lawrence, Director, Property Partnerships, Telereal
Trillium
Brian Reynolds, LGID, CLG Capital and Asset Pathfinders
Programme lead (former Deputy Chief Executive of LB Barnet)
08:30-08:45
Gerry Hughes, Chair’s opening statement

4. Funding and delivering development and renewal
Today
Public sector asset rationalisation and investment –
making Total Capital work
9 JuneEngaging the private sector to deliver development
and renewal in London
10 May
Delivering localism through the planning system
17 March
Town centre and neighbourhood centre
regeneration
17 February
Housing delivery in the new policy environment
20 January
Financing mechanisms to pump-prime infrastructure
delivery
Members of Future of London can reserve up to five free places, other boroughs can reserve up to three, subject to availability. Contact natalia.raha@islington.gov.uk
to register your place at the events

5. Public sector asset rationalisation and
investment:
Making Total Capital work

6. Context: Local Government funding
• Government CSR proposals:
– Revenue funding cut by 26%
– Capital funding cut by 45%
• Implications:
– Review of working practices
– Use space more efficiently
– Reduce rent paid and increase capital receipts
– But weak occupier and investment property market particularly for
secondary/tertiary property in areas with highest public sector
employment

7. Context: Housing
• Government proposals
– Up to 150,000 new affordable homes up to 2014-15
– Reform of housing finance so local authorities will have more
control over their own finances and keep sale receipts
– Localism and New Homes Bonus to increase house building
• Implications:
– Housing budget more than halved, and housing market remains
weak
– Two thirds of social housing tenants receive welfare payments, so
welfare cuts will hit hard
– New tenancy rents at 80% of market levels will improve
development viability
– Will New Homes Bonus (six years council tax) be enough to
encourage more planning approvals and more house building?

8. Context: Development Market…
• Stalled schemes
• Stagnant Market
• Reduced market capacity
– Reduction in number of
developers
– Reduction in size of
developers
• Banking debt finance hard to
source
• No one willing to take risk on up
front costs and infrastructure
• Been reliant on re-phased
schemes
– Affordable homes
– Government backed
…but these will dry up soon
• Traditional model of cross-
subsidisation has failed
– Profitable elements squeezed
– Little or no grant
– Financial viability has fallen
– Developer return fallen/planning
gain lower
– Debt availability fallen

9. Context: Government bodies in London*
33 Boroughs
274 other
government
bodies (at least!)
And then civil
society…
* Source: London Communications Agency with the NLA

10. Context: London Central Government estate*
* Source: Government Office for London

11. The challenge facing London authorities
• Number of organisations involved – governance and decision making
• Multiple funding streams and ability to align investment
• Effective structures for joint investment and sharing of benefits
• Future delivery structures and service demands
• Competing priorities and targets between public sector bodies
• Information – only one in five finance directors believe they have the
information they need to manage their estate properly
• Conflict between the desire to retain freehold ownership with the need
and efficiency of a flexible estate

12. The opportunity for London authorities
• Act as lead for the public estate in the locality:
– Local authority taking the lead landlord role
– Local authority taking the lead role in developing out surplus estate
• Use the opportunities from surplus estate to support regeneration
• Engage with the Private Sector to assist – use assets as
incentives

13. The private sector is interested…
Private Sector Shortlists
Croydon Council
• Amec
• Amey / Telereal
• British Land
• John Laing
• Kier Property
• Land Securities
Trillium
• Lend Lease
• Mapeley, Terrace
Hill and Fairview.
Network Rail
• British Land
• Capital & Counties
• Explore
• Kier
• Lendlease
• Muse
• St Modwen
Newcastle Council
• Barratt Artisan
• Countryside
• Compendium*
• Gleeson
• Grainger
• Persimmon
• St Modwen
• Taylor Wimpey
• Urban Splash
*Lovells/Riverside RSL

14. Making Total Capital work
• How can local authorities lead the way in taking a public sector
wide approach to strategic asset planning?
• Once surplus assets are identified, what can the public sector do
with this part of their estate in the current market?
• What are the best structures for maximising value for money in
the management of the combined operational estate?

15. Our speakers
• Peter Bishop, LDA Group Director of Design, Development and
Environment and Deputy Chief Executive
• Brian Reynolds, LGID, CLG Capital and Asset Pathfinders
Programme lead (former Deputy Chief Executive LB Barnet)
• Rick Lawrence, Director, Property Partnerships, Telereal Trillium

16. Future of London Conference
Capital Assets
24 November 2010
Peter Bishop
Deputy Chief Executive
London Development
Agency

17. We are now entering a
completely different
operating environment

18. If we do not have money
what can London
Government offer?

19. Spatial
Co-ordination

20. COVERS OF OUTPUTS
London’s population will grow – but where?
The Growth of a City – Shifting
East
KCAP Allies & Morrison EDAW

21. Reviewing spatial priorities

22. Public transport investment

24. Big Strategies

25. London Development Agency
London:
New Urban Agenda

26. Places and Spaces: London’s Olympic Legacy
Eleanor Fawcett, Design for London 30 October 2008

27. Olympic Fringe Masterplans

28. The water city
Thriving centres Neighbourhoods + communities Maximise Olympic benefits
The connected valley The working valley
6keythemesfromtheLLVOAPF

29. 650,000 new people
+

30. Housing & LDA land

31. London Housing and Property Company
Revisions and key principles
• Create a framework structure that the LDA/GLA and others can
leverage off during a 4 year period.
• The framework will appoint a PSP that will have exclusivity over
participating sites during the 4 years.
• PSP to have own integrated supply chain.
• The PSP will work up the sites and secure funding for the
development of the sites.
• Intervention by public sector in scheme development minimised, but
must meet core objectives.
• Financial innovation possible at SPV level.
• Land retained by LDA/GLA and transferred into the SPV when
appropriate.
• Composition and structure of SPV to be defined through the
procurement process with the PSP.
• Overage model proposed and investment return to LDA/GLA to be
subordinated.

32. London Housing and Property Company
1st Batch of Sites
Silvertown Way
• 2ha brownfield site
• Mixed use development with
Potential for 600 dwellings
• Excellent transport links
Stephenson Street
• 14.75ha brownfield site
• Mixed use development with c.
3000 dwelling units

33. London Housing and Property
Company
1st batch of sites (cont.)
Other sites?
- Considering Silvertown Quays
- Considering potential for other
GLA family land (TfL, Met) to
be included.

34. Use Land

35. LDA Land Ownership
LDA owned land (including Olympic Park)
- 640.85 Hectares
LDA owned properties - 231

36. St Andrews

37. Dock spaces and river edges

38. Five brave developments have escalated the momentum for growth
Canary Wharf
2012 Olympic Games
Millennium Dome
Excel Centre +
Crossrail
London City
Airport

39. Areas
Total Area ca 650 ha in the Royal docks
Water Area ca 100 ha
Brownfield Land 259 ha (36 Sites)
Public Sector Land 206 ha
Strategic Industrial Land ca 62 ha
Silvertown Quays 21 ha
Royal Business Park 11 ha

40. LDA Land
and
Expenditure
+
LBN
Planning
Powers

41. Agree a common vision

42. Talk to all key landowners and
development partners and identify
priorities
Build an alliance of landowners

43. Albert Basin

44. Masterplan and develop

47. Localism on the
ground

48. Informal community engagement

49. Mapping the potential

51. Projects to be taken forward

53. First results

54. So,
in Conclusion

55. • Think conceptually
• Construct narratives
• Build alliances
• Hold the ring
• Implement incrementally
• Be the conscience

60. Getting the most from capital
and assets
Brian Reynolds
CLG/LGID
brianreynolds25@hotmail.co.uk

61. A number of councils and partners have looked at opportunities for more
efficient capital investment and management of assets across the public
estate.
• Last year one of the Total Place Pilots looked at capital investment whilst others
looked at local asset management.
• Initial figures showed that £30bn pa of central government funds are spent on
buildings and that there is at least £370bn worth of public sector assets around the
country, 1/3 of them being nationally owned (1/3 locally owned, 1/3 housing)
• Existing assets and new capital investment are generally treated separately
• Capital investment is top-down, siloed and fragmented
• Assets are similarly treated in silos of ownership making a local area-wide approach
difficult
• This work identified scope for increasing productivity through a new commissioning
approach which we propose to develop through real-time learning with eleven pathfinder
areas.

62. Public sector property asset base split (£bn)
The public estate is estimated to be worth at least £370bn according to the
Blue book value …
Civic buildings
Council Offices
Care Homes
Social Housing
Libraries
Schools
Investment properties
Public Corporations
e.g. British
Waterways
OGD’s
Fire
Police
PCT & NHS
HCA
Prisons
Local
£239bn
Central
£102bn
Other Public
£29bn
There is some uncertainty about the real value of the public estate. The book value of the entire public
estate (the Blue Book) is based on inflationary increases in property prices over the past ten years. New
capital investment between 2003 and 2010 has added to the public estate and the real value could be
£500bn

63. … with an additional £30bn invested each year in new build and
maintenance
Annual Government capital spend (£bn)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
DfT DCLG DH/NHS DCSF BIS DECC MoJ Defence
EstimatedCapitalExpenditure2009-2010(£m)
Network
Rail
Local
Transport
HA Capital
Other
NAHP
RDAs
Decent
Homes
Other
Foundation
Trusts
NHS Trusts
PCTs
Central
Budgets
BSF and
Primary
Capital
Devolved
Capital
Other
Early Years
RDAs
• Four Whitehall ‘spending’ departments accounted for over half (51%) of central governments capital budgets
in 2009/10
• This includes spending on the built environment: homes, schools, hospitals, roads etc – the key local
services needed in a local area

64. The existing asset stock is owned by local authorities and many different
local agencies of central government
There were over 15 number of new buildings constructed in Leeds over the last 5 years. These were
constructed for different agencies, planned in isolation and largely on the basis of a national view of
what was needed.
Map of publicly funded new buildings in Leeds over the past 5 years

65. More information and
transactional services are
being delivered via a
virtual space: eg online
services through websites
reducing the need for
office space
More health and adult
care services are being
delivered in the home
or your space: eg
Telecare reducing
usage of the public
estate
There is a separation of service delivery arrangements from asset management and
capital investment which inhibits opportunities to make services more productive and
responsive to the needs of local people
Public buildings provide the
physical space to typically
access a single service this
makes it difficult for local
people to access the range of
advice they need e.g.
someone who has lost
employment may need to visit
4 different buildings
Employment
advice and
benefits
Occupational
therapy
RetrainingHousing benefits
Some areas are
rationalising physical
space into one-stop shops
which can make it easier for
people to access all the
services they need facilitating
a multi-agency response and
development of multi-agency
teams
Marsh Lane police
station in Sefton
houses all services for
victims of domestic
violence – 5 in one
building and 4 services
have now merged
Services are largely provided from single-service based
locations but joining-up services can reduce demand
on buildings and improve services
Innovations in service delivery such as IT and
personalisation can drive down the demand for
building space

66. In conclusion
Lost
productivity
in capital
investment
Lost
productivity
in utilising
assets
Lost
productivity
in service
delivery
The arrangements for capital investment do not take account of the
existing asset base across the local public estate. New buildings to
house services do not take account of where existing services are
being provided which can create costly mistakes that need to be
corrected later. Decisions on rationalisation of assets are limited by
organisational boundaries – the scale of savings could increase if
the entire public estate was considered together in an area.
Services could become much more efficient for example, through
co-location so that they can share back-office functions and estate
management costs. This also facilitates the creation of multi-
agency teams which reduce duplication between front-line services
as well as providing single points of contact, one-stop shops and
greater personalisation for individuals.
Opportunities for private sector investment and joint procurement to
strengthen the bargaining position of local service providers are
being lost. Lack of local flexibility to prioritise capital investment and
different rules for different capital streams make joint ventures
difficult to initiate and co-ordinate creating uncertainty, delays and
fragmentation of procurement and delivery arrangements.

67. Productivity can significantly increase through shifting from a fragmented top
down approach to a localist and integrated approach
Decide on each
investment
Current model
Proposed new model
Plan each local
development
Procure each local
development
Decisions start with individual
top-down supply streams.
Existing assets and capital for
new assets are considered
separately
Decide locally
on all
investment
Plan all local
development
Procure all local
development
Siloed decisions lead
to siloed funding and
plans for supply driven
solutions on site by
site basis
These sites are then
procured individually
and separately
Decisions start with demand
across the whole local area.
Existing assets and capital
are thought of together as
“stock and new investment”
Individual developments
come forward small and
large as part of the overall
solution for public sector
buildings required
Sites are procured as
a local and national
collaboration shaping
markets and getting
efficiencies

68. Progress with the Pathfinders
1ST draft Business Cases have been received from Swindon, Worcestershire,
Hampshire, Cambridgeshire, Wigan and Solihull
- 8 service reconfigurations
- 2 Housing developments
- 3 Town centre regeneration schemes
Business Case Options:
- what can be done now
- what could be done if central government removed barriers to local
collaboration
Deadline for final submissions: 8 December

69. Values Table from Pathfinders’ Business Case
A
Baseline
B
Option 1
Currently
possible
project
C
Option 2
If
barriers
removed
A. Total operational footprint (sqm)
B. Current/predicted operating costs
(define)
C. Operating costs per sqm
D. Operating costs per employee
E. Capital receipts from disposal (years 1-5)
F. Implementation costs (capital) (years 1-5)
G. 25 year NPV (costs minus benefits over
25 years discounted at 3.5%)
H. 10 year NPV
I. 5 year NPV

70. Emerging Barriers
Of over two dozen barriers so far identified, few seem insurmountable by local
agencies
Many OGD capital receipts accrue to HMT
The uncertain future of PCTs post 2013
LIFT procurement route is mutually exclusive (eg cannot be combined with an
education LEP)
Treatment of VAT and SDLT
Is this it?

71. Final Thoughts
Sovereignty
Partnership is hard and complex
Leadership
Link to clear view of customer demand
Freehold v leasehold argument
Role of DCLG – facilitation v guidance

72. Property Vehicles – the future?
Rick Lawrence
24 November 2010

73. 73
About us
• Telereal Trillium invests in and manages complex property
investment and service opportunities, creating long-term value for
all stakeholders
• We are the market leader in property outsourcing and investment
• Our clients include private companies, local authorities and
government departments

74. 74
Headline figures
• 8,300 properties with a combined floor area of 8m sq m
• £5bn of property assets
• Over 300,000 customers occupy our buildings, 1% of the UK workforce
• 1,000 people and a further 12,000 service partner staff
• £250m spend on facilities management and capital projects per year
• Our customer service centre handles 750,000 customer contacts per
year

75. 75
Customers
• We manage and provide services to properties nationwide for
private companies, local authorities and central government
departments

76. Public Sector Estate
76
Capital Value
£370bn
£370bn
£130bn
Central Government
£240bn
Local Authority
£18bn - Defence
£18bn - Northern Ireland/Scotland/Wales
£19bn - Investment Portfolio
£121bn -
Schools
Town Halls
Libraries
Social Services Facilities
Other
£100bn - Council Dwellings
£35bn - Health
£5bn - Prisons
£2.5bn - Offices
£2.4bn - Museums
£1.6bn - Courts
£1.2bn – Royal Mail
£45.5bn – Other*
£1bn – Foreign Offices & Residential
* Other – Farms/forests/laboratories/British Waterways/research centres/training
centres/motorway services/testing centres/residential
Annual Running Costs
£25bn
£21.5 bn pa
Mainly health, defence and
local authority
£3.5 bn pa
Mandated Estate*
£25 bn pa
*Mandated estate breakdown
Transport £0.13m
Defence £0.15m
DEFRA £0.16m
Health £0.19m
Home Office £0.25m
BIS £0.31m
HMRC £0.49m
MOJ £0.66m
DWP £0.73m
£3.5 bn
Rest £0.43m

77. 77
DWP case study
Contract summary
• Property Partnership
• 20 year agreement from 1998
• 1,750 properties, 2,500,000 sq m
• NAO endorsement
Financial summary
• £350m capital release from property sale:
£250m (1998) and £100m (2003)
• Predictable future property costs
• Occupancy cost reduction 22%
Service provision and customer benefits
• DWP is able to focus on its core business
• Improved asset management
• Improved FM service
• DWP is able to redeploy capital that was tied
up in property
• DWP enjoys greater flexibility and risk
transfer

78. Property outsourcing model
78
Upfront payment
Integrated property services including
rationalisation / upgrade of estate
Property transferred
(Assets and liabilities)
Unitary charge
Investment in portfolio
Cost savings
Profit shares
Public sector
Private sector
People and knowledge
Delivery platform

79. DWP Occupancy highlights
• 1,750 1,000 buildings
• 730,000 sqm vacated
• 500,000 sqm of disposals
by Telereal Trillium
79
sqm
0
2004 2010

80. DVLA case study
80
DVLA Headquarters, Swansea - before
DVLA Headquarters, Swansea - after

81. PPP/PFI model
81
Construction/refurbishment
Service delivery
Unitary charge
Funding
Public sector
Private sector

82. JV Property Vehicle of the future?
82
Public/Private strategic asset management
Public sector demand management
Innovation
Skills
Rapid delivery
Private sector funding in
Savings and capital released
Joint Venture
Property
Vehicle
82
Smaller, fit for purpose estate
Public sector property in
• major refurbishments
• property reconfigurations
• new facilities / extensions
• Core retained assets
• Efficient service delivery
• Disposals
• Release land for housing/regeneration
• Commercial development opportunity
• Shared savings
Private sector capability in
Enabling projects
Can also offer this service
to others public bodies in
the area or adjoining the
original area

83. Closing thoughts
• Property Vehicles – public/public or public/private
• Ownership of assets
• Procurement
• Alternatives
• New private sector market
• Joined up thinking – DCLG pathfinders/Government Property Unit pilots
83

84. For information about the Future of London
programme please visit our website:
www.futureoflondon.org.uk