Funding Regeneration in an Age of Austerity Back to the Future? Chris Cook Manchester 23 rd January 2014
“ 21 st Century problems cannot be solved with 20 th Century solutions”
Resilience - the enduring power of a body or bodies for transformation, renewal and recovery through the flux of interactions and flow of events Resource Resilience – Natural Grid Financial Resilience – Open Capital
Financial Resilience – Open Capital Prepay – credit returnable in payment for value Protocol – consensual interactive 'two way' agreement
Prepay Tax
Tax Prepay – credit returnable in payment of taxes Tax Return – 'stock' part of tally stick returned to Treasury Rate of Return - rate over time at which stock is returnable for cancellation eg Prepay £ 8 for £ 10 tax - £ 2 profit 25% pa rate of return - not fixed - depends on existence & quantity of flow
Rental Prepay Credits Credit returnable in payment for £ 1. 00 of Rent 10, 000 Credits sold for £ 8, 000 give a 25% absolute return (£ 2 k profit / £ 8 k investment) If Rent is £ 10 k pa Rate of Return is 25% pa If Rent is £ 5 k pa Rate of Return is 12. 5% pa If Rent is £ 2 k pa Rate of Return is 5% pa etc
Protocol - Capital Partnership Occupiers Rental Custodian Prepay Investors 16/06/10 % Managers 8
A Capital Partnership is not an Organisation 16/06/10 9
It does not own anything, do anything, employ anyone, or contract with anyone 16/06/10 10
It is simply a framework agreement within which the stakeholders self organise 16/06/10 11
Conventional property development is a transaction model: developer as middleman Land Owner £ 16/06/10 Property Buyer Developer £ Property Buyer £ 12
Borrow, Buy, Build and B. . . er Off. . . 16/06/10 13
Financed by Equity (ownership) and Debt (from credit institutions) 16/06/10 14
Capital Partnership offers a new approach to financing and funding 16/06/10 15
Financing - for short/medium term, high risk development of new assets 16/06/10 16
Funding - for long term, low risk use of newly complete or existing assets 16/06/10 17
Financing : Land held by/transferred to a Custodian Land 16/06/10 Custodian 18
Land Owners become Investors Land Custodian Land Value Land Owners 16/06/10 19
Councils invest the value of planning permission Land Value Custodian of Planning permission Councils 16/06/10 20
Contractors invest at least the profit margin Land Custodian Profit Margin Contractors 16/06/10 21
Risk-Takers provide £ to pay Contractors’ agreed costs Land Custodian £ Risk-Takers 16/06/10 22
Developers invest 'Intellectual Capital' of concept and services Land Value Investors Land-owners, Councils, Contractors, Risk Takers 16/06/10 Custodian Value Developers 23
Capital Partnership creates a Rental Pool Occupiers Rental Custodian Prepay Investors 16/06/10 % Managers 24
Rental Pools enable a simple but radical new funding option through Prepay 16/06/10 25
Rental Credits – returnable in payment for property occupation 16/06/10 26
Funding - Equity Release by creating Rental Pools from portfolios of completed houses 16/06/10 27
Existing owner becomes the Custodian Houses Custodian
Affordable index-linked rental is set Occupiers Rental Houses Custodian
Proportional Share allocated to Manager Occupiers Rental Houses Custodian % Manager
Balance of Rentals to Investors Occupiers Rental Custodian % Investors % Managers
Prepay Credits returnable in payment for rentals are created and sold to investors 16/06/10 32
Example – Pool of 1, 000 houses has affordable rents of £ 4 m pa 16/06/10 33
After (say) 25% for maintenance etc £ 3 m pa is available for funding costs 16/06/10 34
Debt: £ 3 m pa will fund <£ 40 m debt over 20 years at 5% compound interest 16/06/10 35
Prepay 20 Years' rent = 60 m x £ 1. 00 credits: @ 50 p raises £ 30 m: Rate of Return = 100%/20 yrs = 5%pa @ 66. 6 p raises £ 40 m: RR = 50%/20 yrs = 2. 5%pa 25 Years' rent = 75 m x £ 1. 00 credits: @ 50 p raises £ 37. 5 m: Rate of Return = 100%/25 yrs = 4%pa @ 66. 6 p raises £ 50 m: RR = 50%/25 yrs = 2%pa
Rental Credits – value proposition for Investors not dissimilar to a REIT 16/06/10 37
Except that, crucially, Rental Credits are returnable in payment for rent 16/06/10 38
Rental Credits – as rental levels rise or fall rate of return increases or falls 16/06/10 39
A Rental Pool will have a 'common bond' – geographic or otherwise 16/06/10 40
Occupiers are natural buyers and acquire rental credits by paying rent in advance 16/06/10 41
Occupiers who care for their property may receive 'Sweat Equity' rental credits 16/06/10 42
21 st Century Problem Retiring Generation -'long' of Property and 'short' of Care for themselves and their property - poor returns on deposits (loans to banks) Working Generation – burdened with bank property debt Young Generation – long of Care but short of Property
21 st Century Resolution Retiring Generation - exchange rental credits for care - invests directly 'Peer to Asset' in rental credits Working Generation – direct investment in rental credits replaces bank property debt Young Generation – care exchanged for rental credits
21 st Century problems cannot be solved with 20 th century solutions. .
…. . 21 st century solutions pre-date modern finance
Thank You 16/06/10 47
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