Paul McNeive: 'Joint ventures and PPPs can unlock development'
The right moves
Over my career in agency, I encountered several land-owning clients who wanted to maximise the value of their assets without selling land.
Some were wealthy and wanted to create a long-term, income-producing asset, rather than sell and suffer capital gains tax. Others had a strong generational connection to the land and simply wanted to stay involved. But in all these cases, the individuals would have neither the capital, the experience, nor the appetite for risk, necessary to undertake a development themselves. The solution in these cases was often a joint venture with a developer.
A great advantage of joint ventures is their flexibility, and I was involved in cases where the landowner ended up either owning individual buildings which were then rented out, or with a pre-determined share of the income stream from the overall development - or a combination of those with capital payments.
However, these agreements are complex and can be a recipe for the courts, where the landowner does not take expert advice. The big advantage for the developer is he doesn't have to fund the site purchase all through the development process, which is very attractive when site values are high. Thus, joint ventures are an easy way into a site, and a cynical observer might say the developer has too much control. If the development is going well, the developer keeps going and reaps the rewards. If it's not going well, the developer can slow things down and tie the landowner up in so many knots that they eventually agree to rescind the deal.
In the State sector, a form of joint venture is a Public Private Partnership (PPP) which can also unlock development. The State owns the land, and has the need to create buildings for the public benefit, while the private-sector partner provides capital and development expertise. PPPs have had a chequered history, both here and in the UK, but, where properly run, they can be the perfect formula for success. Examples of successful PPPs here include the Criminal Courts of Justice buildings at Parkgate Street and DIT's new Grangegorman campus.
When one considers the shortage of new housing supply, despite the State's ownership of suitable land, and the planned national infrastructural works such as hospitals, which, as we have seen, are capital intensive and require expert management, it is clear PPPs can play an important role. Also, the recently-established Land Development Agency (LDA) has been tasked with identifying State-owned land suitable for development, and PPPs can be a good solution there. The benefits to the State can be pre-determined, whether it be ownership of individual houses or the creation of infrastructure that benefits the public, which also reduces criticism that State assets will be 'sold off' to the private sector.
One significant PPP specialist is UK-headquartered PLC, U+I, which is focusing on London, Manchester and Dublin as three "high-growth urban regeneration markets". U + I opened an Irish base last year, headed by Dublin development director Arlene van Bosch. The company, which has an €11bn development pipeline, has three prime office redevelopment projects underway in Dublin.
Richard Upton, U + I Deputy CEO, thinks Dublin is ripe for PPPs, "which can work well and deliver for both communities and the public purse." He believes the Irish form of PPP adheres to a narrow style of partnership and takes a "design-build-finance-operate" form. Public contracts usually favour the lowest bidder, rather than the proposal that could deliver the project to completion, and difficulties can arise.
Upton believes the key to a successful PPP is to regard it as akin to a marriage, based on trust, openness, communication and pursuit of a shared vision. Both parties must be fully aware of costs and spending. Two keys to U + I's success, he says, have been its high standards of corporate governance and community engagement. "Trust," he says "is the glue that binds PPPs together."