Date: 27/01/10

Blueprint as a Case Study

A Presentation by: Nick Ebbs CEO

Blueprint

Masterclass in Regeneration

What is Blueprint

• A Public/Private Partnership set up to tackle the

more complex regeneration projects in the East

Midlands

• Effectively operates as a Developer and Funder that

specialises in regeneration and economic

development but different and distinctive

A different structure

A different remit

A different approach

Blueprint Structure (Partners)

• A Limited Partnership between the public and private sectors

which was formed in May 2005

• Igloo, emda, Homes and Communities Agency (HCA) as

shareholders

• emda is one of 9 Regional Development Agencies and has a

remit to enhance strengths and address weaknesses in the East

Midlands economy.

• HCA is a new national agency launched December 2008 and

merges English Partnerships and the Housing Corporation.

• HCA’s principle remit is provide support to Local Authorities and

others on the delivery of homes and regeneration in England

Blueprint Structure (Key Features)

• Igloo “the world’s first sustainable development fund” (United Nations)

• A fund managed by Aviva Investors (who manage £235 billion assets

worldwide) and IRL as DM.

• Igloo invest across the UK sometimes as funder, sometimes as

developer, sometimes both.

• Defining characteristic of structure is that investment, ownership, risk,

profit and control are all shared 50 / 50 between public and private

partners (HCA and emda each 25%, Igloo 50%). No party has casting

vote

• Concentration on the six Urban Priority Areas within the East Midlands

• Vehicle has a 10 year life and performance assessed over 10 years.

Blueprint Structure (Governance)

• Limited Partnership with activities undertaken by the General

Partner on behalf of the Partners

• LP status confers tax benefits to Partners which especially

important if looking to attract tax exempt investors (eg

Pension Funds)

• Simple and effective management structure with GP Board

comprising 4 Directors (2 private, 2 public sector) and system

of delegation to Chief Executive..

• Annual Business Plan approved by GP Board and

shareholders and thereafter Operational Board meetings

every 6 weeks with Executive Team.

• Classified as a private sector vehicle in terms of state aid.

Blueprint Structure

emda (50%) HCA (50%)

“emEP Ltd”50% vote

igloo50% vote

blueprint GeneralPartner

emda HCA igloo

Blueprint Limited Partnership

Partners

Shareholders

Funding Structure

• Funded by a mix of equity and debt (£42m initially).

• Public sector contributed property assets (buildings / sites)

and some cash as equity (non interest bearing and

unsecured)

• Private sector contributed a “cash match”

• emda also made a loan comprising income producing assets

(value circa £18 m) which repaid quarterly and on which

interest paid.

• Additional equity subsequently invested on pro-rata basis (so

far £33m total equity and £14.5m Private Debt)

• As projects completed disposal proceeds recycled to finance

new activity/repay debt

Rationale and Remit

• Two facets – financial return and public good

• Help emda / Homes and Communities Agency, and their associated

stakeholders to deliver their Core Objectives

• From Igloo perspective it is to generate an appropriate risk adjusted

return on investment, consistent with investment policy (Footprint).

• Concept initiated by Public Sector in response to perceived need for

additional resources, new delivery mechanisms and better use of

assets.

• Set up to help address imperfections in the regeneration market but

not complete market failure with focus on projects where the

mainstream private sector might struggle to deliver desired

outcomes

• Concentration on the six Urban Priority Areas within the East

Midlands

Blueprints Approach

• All Blueprint activity shaped by a unique Sustainable

Investment (SI) policy derived from igloo’s footprint policy

• Four principle themes: -

– Regeneration

– Environmental Sustainability

– Design

– Health, Happiness and well-

being

• Primary Focus is areas in need of renewal where

sustained investment over time can drive transformational

change.

Trading Portfolio

• Predominantly small industrial estates located across the East Midlands. Also some commercial/retail/leisure.

• Circa 23 estates mainly built in the 1990s

• Current rent receivable - £I,635,000

• Current Value - £18,575,000 (Dec 09)

Trading Portfolio Assets

Partnership Workspace Portfolio

• Right to share income and capital receipts from Local Authority owned assets.

• Mainly small industrial units (as Trading Portfolio) and some land.

• Income circa £550,000 pa plus capital receipts

Partnership Workspace Portfolio

Nottingham Science Park

• Identified as a priority by emda in response to strengths in local economy and need for enhanced site/premises availability. Nottingham more recently designated by Govt as a Science City.

• Highly problematic site adjacent to a first phase scheme built mainly in the 1980’s and is located opposite the University.

• 12.5 acres now reclaimed and serviced and first phase buildings completed. Multi award winning.

• Highfields Automotive Academy developed for Castle College and Toyota – circa £12m project

• No.1 Nottingham Science Park (42,000sq ft) completed Aug 08.

• Available for letting to knowledge based SMEs. Project cost circa £7.5m (excluding land)

• 5 acres fully serviced and available for development.

• Total Project Value on completion circa £50m

Nottingham Science Park

Nottingham Science Park

Phoenix Square, Leicester

• Mixed Use scheme located in St Georges Cultural Quarter Leicester which identified by Leicester City Council as a growth area for Cultural and Creative Industries.

• Phoenix Square represents the first of several anticipated projects to be undertaken by BP in this regeneration area.

• Ingenious new building with arts cinema, digital media centre, offices and workshops and 63 individually designed apartments.

• Developed by Blueprint at a cost of £21.5m in partnership with Leicester City Council, De Montfort University and Phoenix Arts.

• Completed Nov 09. Blueprint Investment £11m (apartments/some office suites). One third of apartments now either sold or let.

Phoenix Square, Leicester

Phoenix Square, Leicester

Meadows, Nottingham

• 38 three and four bedroom low energy homes as a catalyst for change.

• Part of a much larger (£250m) Neighbourhood Renewal Project in deprived Community. Intention to remove and replace failed housing, provide new public realm and restore “pride and soul”.

• To be developed by Blueprint in partnership with Nottingham City Council and HCA at a cost of circa £7m.

• Exemplar project with innovative design. Includes roof terraces, timber frame structure and will achieve Sustainable Homes Code 4.

• Started on site Jan 10.

Meadows, Nottingham

Meadows, Nottingham

Sadler Square, Derby

• Mixed Use project close to Derby Cathedral within the Cathedral Quarter Conservation Area and a priority for Derby City Council.

• Quality urban environment but blighted by derelict site and underutilised buildings partly due to shift in retail centre.

• Offices 48,000sq ft; Retail 21,000sq ft and 25 Apartments.

• Site assembled, scheme designed and planning consent obtained.

• Site contiguous to other property acquired by Blueprint and which available for subsequent development/enhancement as part of a wider regeneration commitment

• Recession has stalled activity – now likely to be developed in phases.

Sadler Square, Derby

Sadler Square, Derby

Albany Works, Nottingham

• Part of wider Neighbourhood Renewal Project (Extended Eastside/Stonebridge Estate, St Anns) and a priority for Nottingham City Council.

• Mixed use food retail and residential scheme replacing an out of date food store and new homes.

• Part of site assembled and part under offer in conjunction with retail partner.

• Planning in negotiation.

Albany Works, Nottingham

Albany Works, Nottingham

Albany Works, Nottingham

Northgate Riverside,

Leicester

• Predominantly residential project within the Leicester Waterside regeneration area which is a priority for Leicester City Council

• Blueprint identified as preferred developer for the “Pilot Area” –12.5 acres.

• Partnership project with Leicester City Council, HCA and Prospect Leicestershire.

• Part of site assembled by Blueprint, masterplan prepared and conditional approval given to Gateway 1 Application submitted to HCA.

• Long term, complex and high risk project.

Northgate Riverside,

Leicester

Northgate Riverside,

Leicester

A Powerful Tool

Benefits for the Public Sector.

• Create a smart new delivery vehicle with substantial new resources (incl new equity, and capacity to borrow money)

• Creates a vehicle dedicated to regeneration and public sector priorities. Can direct where and how it intervenes.

• Has concentrated geographical focus

• Public Sector retain influence and ultimately control (dead locked vehicle)

• Public sector share in upside with profit share

A Powerful New Tool

Benefits for the Public Sector (contd)

• Scope to optimise “value for money” by working together to

reduce risk in return for lower expectation of profit (Meadows).

• Long term view so avoid need for short term compromise.

Partners committed for ten years and financial performance is

assessed against projected outturn at end of vehicle’s life.

Avoids short term profit taking.

• Stakeholders can have early access to expertise from trusted

partner (Leicester waterside).

• Private sector skills in finance and development management

(credit crunch)

A Powerful New Tool

Benefits for the Private Sector

• Provides access to development opportunities and assets to

which they can add value.

• Initial Critical Mass and potential flow of new opportunities in

which to invest.

• Prospect of more effective and quicker resolution of challenges

• Scope to build long term partnership and expand the portfolio

• Better understanding of Public Sector priorities and processes

• Scope to better manage risk as a result of concerted effort,

investment and partnership working.

Pre-Conditions For Success

• Genuine alignment of interest between Public and Private

Sectors (Footprint)

• Assets introduced must have real potential for value creation

• Need appropriate scale given complexity and cost of

establishment

• To deliver optimum results you need full commitment from

partners at all organisational levels

Some Issues (State Aid/Timing)

• Whilst focus is on areas where market failure vehicle is not suited to all challenges especially those with high risk/ low return profiles. (“For profit” vehicle).

• By definition, most projects require some degree of public sector subsidy (otherwise market resolves) but treated as private sector vehicle which limits scope of “state aid” compliant support.

• Ten years is a short timescale especially given the cyclical nature of property markets.

• Some opportunities better suited to different models of delivery

Some Issues (Funding)

• Even in the good times only a limited number of private sector investors willing to commit to PPP structures

• Currently very little appetite from institutional funds to invest in

property except distressed assets at large discounts or prime

estate.

• For Blueprint specifically banks unwilling to lend unless

guaranteed exit and new equity investment unlikely in the short

term.

• Cash urgently required to maintain regeneration momentum

• Few projects are now viable.

Jessica to the Rescue?

• New JESSICA Urban Development Fund established by emda

in 2009 for the East Midlands. King Sturge recently appointed as

fund manager.

• Comprises £10m from ERDF to be matched by funds from

emda and other parties yet to be identified.

• Available as equity, debt or guarantees for projects that meet

the relevant criteria (Priority Axis 1 – Innovation and Sustainable

Business Practice).

• Blueprint proposes to apply to fund for equity/loans to invest in

projects including the Sadler Square scheme

Jessica to the Rescue

Investment direct into Blueprint as an Urban Development Fund

problematic as Commission wishes to see separation between

investment and development activity

Clarity still required as to how JESSICA might be invested in a

project.

A work in progress.