Memorandum by David Hodgson (ERF 21)
1. PERSONAL EXPERIENCE
& BACKGROUND
I have been employed in regeneration since 1995.
My first position following graduation from De Montfort University
with a BSc (Hons) Land Management degree was with Citex in Sheffield.
Here I was a member of the Urban Development
Consultancy, a team involved in the preparation and submission
of a number of Gap Funding applications and appraisals, primarily
under the former Partnership Investment Programme (PIP) regime
but also the Single Regeneration Budget and European Objective
2. I also undertook a year long secondment to the Yorkshire Forward
Regional Development Agency in Doncaster, Leeds and Hull in the
position of Development Manager.
Since June 2000, I have been in the employment
of Miller Developments, based in Barnsley. A proportion of my
time is being responsible to Miller Developments in the role of
Development Surveyor as part of the Industrial Development team,
concentrating on B2 and B8 of the Use Classes Order (1987) schemes.
As part of this role, I am involved in actively seeking contaminated
sites which Miller can undertake employment use development in
conjunction with partners involved in the reclamation of brownfield
sites.
The remaining element of my position is as a
surveyor for the Barnsley Miller Partnership Limited (BMPL), a
50/50 joint venture between Miller Developments and Barnsley Metropolitan
Borough Council. BMPL undertake development solely within the
Borough of Barnsley and it is through this vehicle that I have
become exposed the Objective 1 grant application process
2. USE OF
OBJECTIVE ONE
AS A
PROJECT SPECIFIC
REGENERATION TOOL
At present, Yorkshire Forward have taken a policy
decision not to offer the new Gap Funding regime to the market.
The only tool made available to developers in Yorkshire to bring
forward small scale unviable projects is to secure funding through
the Objective One regime. This presents its own problems.
Objective One is, quite rightly, targeted at
attracting major investment into South Yorkshire through the provision
and assembly of sites offer major strategic development. Its bureaucracy
and terms of engagement are not well suited to the support of
individual small-scale projects, either in terms of timescale
or method of appraisal. Specifically:
— the application exercise requires
the developer to form a view on not only the physical aspects
of the deal, but also "soft" regeneration outputs such
as Social Inclusion and Education. Whilst appropriate for larger
schemes, I would suggest that this creates simply another hurdle
for the developer in undertaking smaller schemes, something which
is made difficult enough given the obvious economic disadvantage
of pursuing schemes in Objective One areas;
— the application process, including
the level and type of information required, is laborious and requires
a significant level of input from already stretched council departments
on cross-cutting theme and wider community and regeneration issues;
— the complexity in applying for, securing
and drawing down Objective One funding is substantial and is a
major negative factor;
— the developer is required to form
a close relationship and understanding of the potential tenant's
business. There are the problems of having to pursue an application
on the basis of having an identified tenant of a certain business
type and number of employees etc whilst not having this tenant
legally signed up—something it is not possible to do until
an offer of grant is forthcoming. Should the tenant not sign,
the process and work is unravelled; and
— clawback provisions under Objective
One are also very onerous with the developer becoming responsible
to repay grant should the status of the occupier change in the
future.
3. THE NEW
EU APPROVED LAND
AND REGENERATION
SCHEMES
Of the five schemes stated, I feel qualified
to respond to the Direct Development, the Speculative and Non-speculative
Gap Funding Schemes.
3.1 Lack of Regional Development Agency (RDA)
take-up
In some ways, a Yorkshire based developer is
unable to provide an in-depth first hand account of the effectiveness,
usage and coverage of the five new, EU approved land and property
regeneration schemes. This is due to the local body through which
these schemes are administered, Yorkshire Forward, making a policy
decision not to utilise these powers and therefore not offer Gap
Funding as a regeneration tool. Instead, the message has been
one of joint venture with the private sector to bring forward
substantial schemes to act as regional economic drivers.
Yorkshire Forward is not the only RDA to have
made a policy decision not to offer Gap Funding to individual
schemes. In fact, it is my understanding that the North West RDA
is the only one to have adopted a scheme.
In some aspects, I am supportive of the joint
venture approach offered by Yorkshire Forward as this will bring
forward major strategic sites through a public/private approach
to form new markets in areas. One such example in which Miller
Developments are involved would be working alongside English Partnerships
to deliver over seven million square foot of commercial space
at Omega, Warrington. This development will soak up unsatisfied
demand from Manchester and Liverpool, ease city centre congestion
and bring international investment into the North West.
A project on this scale would be beneficial
to South Yorkshire, although I would suggest that such a scheme
should be incorporated into the Sheffield Urban Centre, something
being progressed with the E-Campus proposals.
To disregard the powers that have been made
available to RDA's does, I believe, mean that a significant opportunity
to support smaller but equally as important schemes has been lost.
For instance, a high quality, well designed say 50,000 square
feet office development in the centre of Barnsley would add a
great deal to the Urban Centre, create new jobs and training opportunities,
bring investment and hopefully provide a "step change"
to the local economy and market. Evidence would suggest however
that this type of scheme would only progress on a speculative
basis were Gap Funding to be made available, the project and returns
likely to be generated being insufficient to warrant a joint venture
approach.
3.2 Lack of Advertised Information and Guidance
Property Development is a complex matter, with
statutory guidelines such as planning and building regulations
constantly undergoing review and amendment, the need for long
and complex legal discussion and documentation, all against the
background of identifying new business and negotiating and disposing
of assets. All of the above renders property development in the
UK a lengthy process with a large number of "boxes to be
ticked" for even the smallest of projects.
The need for Gap Funding provides another area
requiring attention and more significantly, providing risk. Timescale,
risk and return are the key elements to undertaking successful
development. With the lack of clarity over whether RDA's have
Gap Funding powers, whether they are offering them to the market
and the process through which a scheme must pass to secure funds
adds significant downside to all of these key areas. What is required
is a clear statement from the UK Government that RDA's now have
these powers and a subsequent clear directive to the RDA's whether
they are to offer these powers to the market or not. If not, at
least developers would recognise the situation and move on to
undertaking schemes in areas where development is viable—thereby
increasing the deprivation in regeneration areas and increasing
prices and demand in already bull markets.
On the assumption that RDA's would therefore
offer Gap Funding to the market, there then needs to be standard
published guidance, application forms, appraisal processes and
identified personnel in each RDA to which an approach can be made.
When a site and tenant are identified, time is a critical element
and at present, too much time is taken with discussion about the
scheme, to whom an application should be made and the unclear
advice as to the likelihood of success.
3.3 Other Regeneration Tools
At present, only Gap Funding is on offer through
the new regime. There are a number of situations where gap funding
is not the most appropriate solution and other tools such as rental
guarantees or interest free loans would be beneficial.
One power that would hold significant benefits
to regeneration would be to grant RDA's streamlined and enhanced
Compulsory Purchase powers. Site assembly is often a key element
in promoting substantial and viable development and this would
be a key area where the public and private sectors could work
together. Such a scheme is being undertaken by the Barnsley Miller
Partnership where the council through CPO's are assembling a site
which the Partnership will then acquire at market value and undertaken
development to regenerate a satellite town in the Borough.
3.4 Flexibility
Whilst recognising that any schemes involving
public sector investment will be subject to close controls and
strict criteria, a benefit of the former PIP scheme was that it
did allow a certain amount of subjective opinion from the funding
body. RDA's employ a significant number of highly skilled and
competent members of staff, former developers or other private
sector employees. This skilled labour should have greater flexibility
to make "commercial" decisions where appropriate to
add to the success of a scheme—and as a consequence potentially
increasing the outputs realised and reduce the public sector investment
to a minimum.
3.5 Assisted Area Status
The new Gap Funding regime is only eligible
in Tier One or Tier Two areas. This completely neglects the reality
of pockets of deprivation in otherwise generally thriving economic
areas. In Yorkshire, Leeds is immensely successful as a commercial
and financial city centre. This success generally lifts the GDP
of West Yorkshire to such a level where it cannot attract Assisted
Area status and therefore does not qualify for Gap Funding. The
reality is that West Yorkshire does hold some extremely deprived
areas in which development is not viable and will not come forward.
3.6 Intervention Rates
Intervention Rates under the new framework are
(assuming non SME status) 35 per cent in Tier One and 10-20 per
cent in Tier 2. If a scheme requires Gap Funding, a 10per cent
intervention rate is insufficient and would in all likelihood
have been rejected under the PIP scheme as not offering good value
for money. This therefore implies a push towards Direct Development.
3.7 Direct Development
Whilst Direct Development can work, it would
be my opinion that the bureaucracy required in investing public
finance into a scheme means that with the timescale to occupancy
being such a critical element for most occupiers, offering Design
and Build packages to the market is not feasible. This therefore
cuts out a significant proportion of the market and will mean
that large scale inward investors requiring a highly bespoke large
complex facility building will not be attracted. Also, previous
indications have been that Direct Development can typically cost
public bodies four to five times more for the same outputs in
addition to placing all the development risk onto the public sector.
The most obvious failing however is the failure
to embrace and involve the private sector and utilise the investment
and critically the market knowledge and understanding that a partner
can bring.
3.8 Defined appraisal costs
The new guidelines provide for a number of costs
that are clearly defined and have ceilings set upon them. One
such example would be site value equating to no more that 10 per
cent of total project cost.
I reiterate that appraisers of schemes need
to be given the flexibility of making commercial decisions that
are right for the scheme and for the public purse. There may be
a substantive reason why a cost is more than the ceiling and to
set these on a mandatory basis could damage the viability of a
gap funded scheme as well as not reflecting reality.
Under Objective One, finance costs are not allowed
as an eligible cost. I am not clear as to whether this would be
the case under the EU regime but the costs of borrowing finance
should always be eligible.
3.9 SME v Non-SME
On the surface, making a distinction between
SME's and non-SME's appears to be counter productive and prohibitive.
With regard the speculative scheme, it is the
status of the developer that is measured when judging whether
an applicant is an SME. If that developer is an SME, up to an
additional 15 per cent of funding is made available. All developers
are faced with similar costs however, the land and construction
prices having the most impact on overall costs and therefore viability.
These are generally constant regardless of the status of the developer
and are dictated by the market. I would have considered it more
advantageous to attract large, substantial development companies
into regeneration areas, who by definition have greater cash reserves,
generally greater experience and are therefore able to consider
schemes with a greater risk profile. The involvement of "big
name" developers can also increase the marketability of an
area and convince other developers to seek opportunities in the
locality.
With regard the non-speculative scheme, ie an
identified end-user, the tenant is measured with regard the SME
definition requiring a developer to understand and provide information
on the proposed tenant. By definition, a tenant cannot be legally
signed to a deal until the level of funding is known as it is
not clear as to whether the scheme will proceed. The regime does
require a substantial level of information to be appraised regarding
the tenant and given the timescales generally involved in securing
an offer, this therefore provides the opportunity for the end-user's
business or market to shift and remove any requirement. The process
would therefore start again.
This requirement for information regarding the
tenant would also in all likelihood be made through the developer,
therefore providing an additional obligation on the developer
to provide information they have no knowledge is correct or justified
but still being a vital factor on the whole viability of the scheme
on which the developer is risking cash.
The restriction on the level of grant available
needs to be defined by the site or the development, not by the
developer or the occupier. The current framework appears counter—productive,
serves no positive purpose and ignores that fact that a regeneration
area securing a major plc or private company as a key occupier
can result in a significantly beneficial regeneration result.
The current guidelines do not reflect the benefit of say Sunderland
on attracting Nissan, which will invariably lead to more opportunities
for SME's and market enhancement than an additional 15 per cent
of Gap Funding.
3.10 Appraisal Timescale
Typically, the timescale for a decision can
be a minimum of six months. The modern occupier is typically considering
sites both throughout the UK and Europe and is relatively "footloose".
Assisted Areas are therefore put at a disadvantage as it is not
possible to submit accurate initial proposals given the lack of
clarity of how much funding is envisaged and, as indicated above,
occupiers now place less emphasis on a short-term financial deal
and more on long-term costs to the business. Timescale to occupancy
is therefore a critical element and one in which the private and
public sectors need to work to reduce.
3.11 No support for Residential Development
I have been involved in a number of residential
schemes whilst at Citex which have had a substantial and positive
regeneration effect. These have included the Cornish Place and
Attercliffe Urban Village developments, both in Sheffield, and
the redevelopment of a brownfield site in Manchester.
The larger regeneration arguments aside such
as the 60 per cent of residential development to be undertaken
on brownfield sites, we are increasingly being made aware that
the demographics of a local area are of greater importance to
potential occupiers than the availability of financial incentives.
This means a keen and motivated workforce with sufficient skills
to be attracted to the new jobs. Such a workforce will only exist
or be attracted to an area if there is attractive and high quality
residential developments in the vicinity. By definition, it is
unlikely that homes of great quality and value will be situated
in deprived areas, thereby increasing the risk that the occupier
will not secure the workforce they require.
There is of course the chance that good transport
links between the location of employment and residence will solve
this problem, however with the poor state of public transport
and the stated aims of Government to reduce the number of journeys
made by private car, this would seemingly undermine both options.
3.12 Other Development Types
It is correct that the main emphasis should
be on job creation. However, it is important to recognise the
benefit to specifically an Urban Centre that other type of development
can hold. The Barnsley Miller Partnership is currently attempting
to undertake a major leisure development in Barnsley, the scale
of which is unparalleled in the town and it is envisaged will
persuade the local population to spend leisure time and disposal
income in the town without travelling to the Don Valley, Sheffield.
It is proving a difficult task given that the occupier market
is thin in the town and of those interested, the covenant strength
is of varying quality.
A scheme needs to recognise the benefits such
a scheme will have to the town and offer assistance, whether it
is in the form of gap funding or more innovative solutions such
a rental guarantees, to overcome covenant and low value issues.
4. THE NEED
FOR A
NEW EUROPEAN
REGENERATION FRAMEWORK
All of the above are my opinion as to the main
reasons that there is a need for a new European Regeneration Framework.
They key elements of this framework should be:
— clear Central Government guidance
to Regional Development Agencies, which is then disseminated to
the market stating precisely whether gap funding is on offer and
what are the guidelines, application requirements and points of
contact for developers and other applicants;
— clarity that all RDA's are able and
will offer the new framework as a regeneration tool;
— a removal of the defined areas where
gap funding is available from Assisted Areas to a solution which
reflects the specific need of an area. The former PIP scheme did
result in the "pepper-potting" of assisted development
at times and so a medium needs to be reached whereby each region
can identify and have approved their specific target areas;
— the provision of an increased number
of regeneration tools such as rental guarantees and Compulsory
Purchase powers under a significantly streamlined system;
— the removal of the distinction between
SME and non-SME differing intervention rates;
— a framework which allows "softer"
regeneration to occur alongside "harder" outputs with
both elements complimenting each other, but does not require developers
to get heavily involved in the provision of community training
or social inclusion or visa versa. There needs to be joined up
thinking to ensure holistic regeneration but developers need to
be able to maximise their skills and not be given additional areas
of risk or distraction;
— more flexibility granted in the appraisal
decision making process, the ability of public sector officers
to consider commercial arguments and requirements when considering
a scheme and not have absolute ceilings on costs or levels of
intervention;
— a reduction in the timescale for
a decision and the implementation for a target time to reach and
inform of a decision, similar to that of eight weeks in respect
of planning decisions. A clear monitoring of this target should
also occur;
— a scheme which allows support for
residential development and reflects its importance in regeneration
and attracting occupiers; and
— a scheme which allows and reflects
the importance of other development types such as leisure.
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