Public sector bodies are increasingly looking at investment, as opposed to development, joint venture approaches to major projects involving significant housing and regeneration provision. In other words joint venturing with an investment partner (or partners) with a view to opening up development opportunities by providing or funding infrastructure or providing other similar financial assistance with the investor taking out its returns in the short, medium or long term depending upon the nature of the funding provided.
The opportunity often involves co-investment in a joint venture investment vehicle with the public sector body investing land in return for a commensurate share of the returns. Such an investment partnership has various benefits from a public sector perspective. The appointment of an investor(s) (as indicated previously there may be more than one investor) can be an easier path by splitting the appointment of those providing finance from those providing works and services in relation to the project. There is also the benefit to both the public and private sectors of a potentially more streamlined process to appoint the investor, with the public sector being able to undertake a procurement process of its own choosing rather than the more regulated process set down under EU procurement legislation.
These benefits are in addition to those usually attributed to public and private corporate joint ventures namely, the use of assets to support finance for infrastructure or similar costs and the conversion of a capital receipt into a revenue stream for the public sector body (although the latter can also be achieved via a rent sharing lease structure).
As no works or services are involved the public sector body can confine bidders’ attention to minimum commitments to infrastructure and other costs to release sites (with individual site development being enabled by the joint venture vehicle), the level of returns sought by the investor over the term of the project and those to be offered to the public sector in return for its investment in the joint venture vehicle (usually by way of a land contribution). However, the public sector body must be careful not to specify the investor or joint venture vehicle to undertake works or services (and indeed may include a provision prohibiting such).
In advance of seeking an investor the public sector body should have prepared a business case for its strategy which should contain a clear understanding of the role of and anticipated levels of returns to investors. Cash flows should have been identified and aligned to anticipated repayments and returns. Potential private sector bidders should scrutinise the public sector proposals carefully to understand whether sufficient rigour has been applied to the financial and contractual structure underpinning the strategy. All too often a public sector body has been seen to have a credible objective but has not detailed the means of achieving that objective.
The delivery of the housing or regeneration project will be undertaken separately. This may be achieved through a separate development management vehicle who will appoint the professional team and, if the route is chosen, a specific development manager. The development strategy would be established by the joint venture investment vehicle with delivery of that strategy in the hands of the development management vehicle. The joint venture vehicle will need to be structured to ensure that it does not acquire the characteristics of a public sector body.
Where the joint venture investment vehicle is structured as a private sector vehicle then there will be complete discretion on the strategy and terms of disposal, whether by straight land sale, development agreement or direct commissioning. On the other hand if there is any doubt then the strategy will need to focus on land disposal with “back-stop mechanisms” put in place to address the position where obligations are not performed and so avoiding any suggestion of specifying works whether through development covenants or other means.