Unlocking land and property value within the public sector

Property is a valuable asset for the public sector – but it can also be costly to run and maintain. There are also certain Best Value requirements that councils must meet when commencing any project involving their property assets, whether it be the sale of land, property or delivering a regeneration project.

Under Best Value, when reviewing development options, local authorities should consider overall value, including economic, environmental and social aspects.

However, in recent years, councils have found themselves under increasing pressure to deliver projects quicker and for lower cost. This raised the question of whether the existing options available to councils were the most efficient.

Relational Partnering

Until recently, there were three options open to councils when looking to start a property project: either do nothing, run and fund a project themselves or outsource to a third-party partner to deliver the project through a traditional tender procurement process.

However, there is another approach known as ‘Relational Partnering’, which seeks to make it easier for councils to increase the return on their property assets. It is a unique and proven model utilised exclusively by Public Sector Plc which focuses on forming a relationship with a public sector partner and jointly finding the best solution to deliver agreed objectives.

Underpinning this new partnering approach is the idea that a local authorities’ own resources can be strengthened through the in-sourcing of market skills, expertise and additional resource.

Generally, Relational Partnering can deliver a combination of three commercial objectives: revenue savings, revenue income and capital creation. In addition to this, many schemes also deliver broader socio-economic or regeneration benefits.

The Commission

In January 2017, the Local Government Council Consortium Group (LG-CCG) launched a Commission of inquiry “to consider and propose the use of Relational Partnering as an additional property option for local authorities when meeting Best Value.”

The LG-CCG is a group of representatives from 19 councils across the UK – of different politics, sizes, types and property needs – who are already putting Relational Partnering into practice in partnership with Public Sector Plc.

The Commission was supported by technical groups and panels made up of a diverse mix of more than 100 experts from both the public and private sector.

The work of the Commission was also overseen and scrutinised by a Peers Panel chaired by Lord Graham Tope (Liberal Democrat), with support from Lord Peter Bowness (Conservative) and Lord Peter Smith (Labour). Established to lead and direct the Commission and to ensure transparency, the panel guided the Commission’s delivery.

The need for an alternative model

What became apparent to the Commission is that property options available to local authorities in the current environment are not helping councils to fully realise the value of their assets.

The testimony of councillors from across the political spectrum, as well as senior managers with decades of experience in local government, highlighted to the Commission that they find the traditional set of three choices have constrained the opportunities for real improvement in unlocking value from their property estates. As such, councils should properly evaluate all options open to them.

Regeneris, an independent economics consultancy, explored the social and economic impacts of both completed and ongoing Relational Partnering projects across 19 council partnerships with Public Sector Plc. Its research showed that Public Sector Plc’s projects delivered £374m investment in construction, 2,300 additional homes, 6,270 long-term jobs and 3,000 short-term construction jobs.

But imagine if these results were replicated across England. Regeneris also explored the potential socio-economic and wider benefits that could be generated if Relational Partnering was adopted across 353 Councils in England: delivering up to £6 billion of investment in construction, building up to 38,000 new homes, supporting up to 104,800 long-term jobs and up to 50,600 short-term construction jobs.

Having reviewed the report findings, the Commission believes there to be true value in Relational Partnering and encourages councils to consider the model when deliberating upcoming property projects or how to maximise their existing property portfolios.

 Land promotion and regeneration

Public Sector Plc works exclusively with property and land assets through the establishment of Limited Liability Partnerships (LLPs) with councils and other public sector organisations. Above all, we provide expertise and funding to unlock value within public sector property assets through our unique Relational Partnering in-sourcing model.

We facilitate a broad range of property projects working with property portfolios surplus land, assets or property held for development income producing portfolios or operational estates we can help deliver capital creation, revenue savings, revenue income, socio-economic outcomes and even new buildings or community facilities.

The alternative model in action

Following construction of a new school, the former Hinguar school site was declared surplus to requirements. The Public Sector Plc partnership in Southend was asked to devise a strategy to maximise the potential capital receipt from the scheme to contribute towards the cost of building the new school.

The Public Sector Plc Southend partnership put together a capacity study, planning brief and site constraints plan to take to the market to seek a joint venture partner to work with the partnership to deliver new homes. Straightforward bids to purchase the site were received, as well as bids specifying the partnership would receive a share of the selling price of each home built and sold on the site.

A developer was selected who prepared a planning application for the site and undertook the construction of new houses and the conversion of the old school to characterful apartments.

Whilst the receipts clearly took longer to generate, the final outcome in terms of land value was a total return in excess of 3.5 times greater than the bids received for a straight purchase. This was only achieved by employing Relational Partnering.

At the other end of the spectrum, the partnership in Gateshead has recently taken on the strategic management of its Tenanted Non-Residential Portfolio worth

£35million and will work this over a seven year period to produce a portfolio that is smaller in size, but has the same or better capital value, is cheaper to run, has better long-term income potential and can be handed back at the end of the period in its improved state.

The full 2018 LG-CCG Commission Report can be found here.