Manchester bolsters regeneration with £25m for joint venture
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Manchester City Council is lending £25m to a development joint venture in which it is a partner, to protect a major regeneration plan.
The city has decided to co-fund a land purchase to enable its Northern Gateway project to go forward.
The project is forecast to deliver up to 15,000 new homes using low-carbon construction and will need supporting infrastructure over the next 20 years.
Details of the council’s funding deal went before councillors this week to sign off so that negotiations can begin.
The £25m is a budget allocation that will co-fund its development vehicle created in partnership with a Hong Kong investment firm.
Manchester entered the joint venture (JV) with the Far East Consortium (FEC) in April 2017.
The property and investment company was founded in 1972 and is registered on the Hong Kong stock exchange.
The complex deal has been in planning since 2015 and now needs funding to buy the plots of land for redevelopment.
The two organisations created Northern Gateway Operations Limited (OpCo) as the JV that will deliver the new development.
But it will take five years to get the sites ready for building which will not generate a return.
It is this first phase where many private developments fail, and this is why Manchester is allocating £25m from its capital budget programme.
Final figures have yet to be agreed for the land deals but outline finance plans are for funding to be used alongside capital investment capability generated by the housing revenue account to partly fund an initial phase of development activity.
Suzanne Richards, the council’s executive member for housing and regeneration, said: “The decision to acquire strategic land has been scrutinised by the resources and governance committee this week.
“The sites are considered essential to the first phase of the Northern Gateway programme and assembling the land will allow the joint venture to fully realise the potential of the opportunity that will transform the area north of the city centre, between NOMA and Collyhurst, over the next 15 to 20 years.”
So how will it work?
Richards said in a statement to Room151 “A commercial loan has been identified as the most appropriate co-investment arrangement for the parties included in the Northern Gateway joint venture to ensure we can assemble the land necessary to facilitate comprehensive development across several sites.
“The loan will be fully recoverable and presents a less risky option to the council.”
Any building development carries risk, especially with significant economic uncertainty, but Manchester has been one of Britain’s leaders of regeneration since the 1990s when key people including former Factory records owner Tony Wilson began reviving abandoned warehouses.
As a result, the JV has several safeguards built in, according to council officials. The council is legally protected as the primary lender.
The council will provide 50% of the value of the full land investment. This allows the council to support the land acquisition for joint venture with less risk.
If the JV ever goes under, the council, as lender, will recover the land directly back from FEC as the “first charge”.
Added to this, FEC is providing a parent company guarantee so that potentially funds could be recovered from FEC’s parent company in Hong Kong.
Councils are increasingly staying in developments as partners in order to take a greater profit share when a deal over-performs.
Manchester could benefit from this through ‘waterfall’ clauses in the JV agreement.
The council can look to claw back money on any land that it sells to FEC if it out performs what is currently expecting when it breaks a profit.
Councillors are reviewing the terms but the timescales mean the JV will quickly move to public consultation.
Richards said: “The detail is confidential at this stage due to commercial sensitivities, but we will consult further with local people at the appropriate time with a view to preparing the initial planning applications as soon as possible.”
