Bournemouth Local Asset Backed Vehicle.
Local asset backed vehicles (LABVs) are special purpose vehicles owned 50/50 by the public and private sector partners with the specific purpose of carrying out comprehensive, area-based regeneration and/or renewal of operational assets. In essence, the public sector invests property assets into the vehicle which are matched in cash by the private sector partner, as illustrated in the adjacent diagram.
The partnership may then use these assets as collateral to raise debt financing to develop and regenerate the portfolio. Assets will revert back to the public sector if the partnership does not progress them according to pre-agreed timescales through the use of ‘options’ which prevent land-banking, thereby assuring speedier delivery.
The potential for this sort of delivery vehicle in the public sector is enormous, with numerous councils and other public sector bodies investigating the approach. The applications for a LABV go beyond property development – with the increase of ESCOs (Energy Service Companies) that deliver more sustainable approaches to energy provision but rely on large scale development in a close geographic area a LABV can provide significant sustainable energy solutions.
The benefits also are very significant. LABVs incentivise the private sector to invest and deliver over the longer term, as returns are subject to performance of the partnership over 10–20 years as an entire neighbourhood or town centre is uplifted. This compares with the short-term opportunism and ‘cherry picking’ practised by many developers, which can be damaging to the prospects of neighbouring buildings and the area as a whole. This longer-term investment perspective is the single most important benefit of the LABV approach.
The purpose of the vehicle can also be grounded in wider public sector regeneration objectives that are beyond physical development and financial returns. For example, many LABVs are being set up in the context of economic development objectives. These objectives may be drawn narrowly (eg building incubator units) or widely (eg creating a vibrant and attractive town/city centre that will be attractive to the next generation of entrepreneurs who will be at the heart of the UK’s knowledge economy).
For more information see Grace, G., and Ludiman, A (2007) Local asset backed vehicles: The potential for exponential growth as the delivery vehicle of choice for physical regeneration.
The LIBV (Local Incentive Backed Vehicle) is based on the LABV (Local Asset Backed Vehicle) with one fundamental difference that protects the public sector from ‘selling the family silver’ at the bottom of the market: LIBVs rely heavily on the use of ‘property options’ (ie enable a landowner to purchase a site (or sites) at some future time and may be structured to be conditional upon the purchaser meeting certain pre-agreed milestones. This acts as an incentive for the private sector to take a much longer term perspective - up to 30 years in a given location - eg a town centre - thereby creating the platform for genuine partnership working between the public and private sectors and the potential for the more holistic aspects of regeneration – such as place making – to be properly considered, funded and managed.
Development AgreementsThis is the more traditional approach to partnering between the public and private sectors and tends to be more relevant for single site arrangements. Given developers usually have more expertise in direct developments than many landowners – such as councils for whom development is not core business – and will have relationships with a ready supply chain, and an understanding of the marketplace that will more readily enable them to manage risk and create a profitable scheme.
A properly structured development agreement between a landowner and developer will require the developer to procure a certain form of development and share future revenues with the landowner. We can lead negotiations on development agreements for public and private sector clients across all types of commercial and residential developments in recent years.