The government’s Regeneration and Investment Organisation is in discussions with overseas investors on more than £5bn-worth of UK projects, its chairman has revealed.
In an exclusive interview with Construction News, Sir Michael Bear said RIO had a full pipeline of around 184 UK projects worth a total of £100bn, of which £40bn were considered “shovel-ready”.
More than two-thirds of those deemed ready for construction are outside the capital, he revealed.
The remaining £60bn of projects in RIO’s pipeline are in “various stages”, including schemes awaiting planning approval or those in need of further land to progress.
RIO was set up by the government in November 2013 to attract overseas investment into large-scale regeneration projects in the UK.
The team is assessed annually and will run for three years until November 2016, although there is scope for this to be extended.
“What we try to do is deal with market failure, where something has to happen in order for it to get off the ground, whether it’s planning or a piece of infrastructure,” Sir Michael said.
Asked whether contractors should be concerned about overseas developers entering the market, he said that there “was nothing to fear”.
As Construction News recently revealed, two state-owned Chinese contractors were among three shortlisted for Wanda One’s £400m One Nine Elms development after UK firms withdrew from the race.
The RIO team has already worked on projects with both Wanda One and fellow Chinese developer Greenland.
Sir Michael said it was up to contractors to develop the right strategy to cope with an increase in overseas “developer-investors” entering the UK market.
He said construction thrived on competition and that increased overseas investment into the UK provided an opportunity for the industry to grow.
“It is for them to get their strategy right on how to harness their potential with overseas participants,” Sir Michael said.
“I’m an ex-Balfour Beatty man so I know [the market] only too well but we thrive on competition and, providing it’s a level playing field, it’s all to gain from. I don’t think we have anything to fear.”
The chairman said investor appetite for seeking higher returns outside the capital was “very high”, with potential backers targeting projects in Birmingham, Sheffield and Leeds, among other cities.
To date, RIO has been involved in deals including the development of Airport City Manchester with Beijing Construction Engineering Group, Carillion and Greater Manchester Pension Fund.
“We don’t deal with plain vanilla… such as ‘the Gherkin’. We have to work hard at making the difference between a blighted site and a regeneration project.”
Projects in RIO’s pipeline must have a total value of £100m or more to be considered by the team.
These can be either individual projects or “bundled” schemes, where sites are clustered together to give a collective total of more than £100m.
One example already in the pipeline is a collection of private rented sector developments across 12 locations in the North-west that total £750m.
RIO head of projects and finance Paul March told Construction News that, in this case, the team would be looking for one investor to get involved in “one common project”, through the creation of a new company.
Mr Marsh said “two or three” investors have shown interest to date, but he added that discussions were still at the “early stages of dialogue”.
Asked whether investors were more nervous about entering projects where more than one scheme was involved, Sir Michael said that, providing the scheme had regulatory and planning certainty, they were “very happy to move ahead”.
Sir Michael on RIO’s role:
“We run a dating agency. We put the investors into play with the developers and promoters at the earliest possible stage and then hand hold them through.”
Sir Michael said investors are looking to tick the following boxes: Population growth; very good Infrastructure; and Employment opportunities.
On standards, the chairman said that different investors followed different models.
“Greenland, for example, assembled a hugely skilled team of planners, architects and advisers [on its UK project], as did Wanda One at One Nine Elms.
“So they are very conscious of what the regeneration culture and requirements are in terms of standards regulations and that’s the attraction of working in the UK.
“A number of Chinese developer- investors want to learn from us and are very receptive to upping their game or understanding what to do to up their game in terms of quality and standards and a product that they can be proud of, so they can use us as a stepping stone into Europe and the US.”
RIO has a list of “priority markets”, which it is targeting for potential interest from specific overseas investors.
They include China, Hong Kong, Singapore, the US and Canada.
Potential investors include Chinese firms Dalian Wanda, ABP and Greenland, Hutchinson in Hong Kong and several large Singaporean and Canadian pension funds.
“These are people who have selected the UK as a key destination for regeneration investment,” Sir Michael said.
He said he was particularly keen on targeting Canada, saying the country “has a very good track record of investment in infrastructure and the asset class is quite similar - patient money going for patient returns”.
The team has also received enquiries from Norwegian sovereign wealth funds and Australian investors.
Major schemes backed
A major London project listed by the Regeneration and Investment Organisation has secured investment. The £250m residential project in east Croydon is part of the region’s Cherry Orchard Road mixed-use development.
The 54-storey tower has full planning consent and is the centrepiece for the 2.5m sq ft east Croydon masterplan, comprising 500 apartments, a boutique
hotel, 67,000 sq ft of start-up office space and new leisure and recreational facilities.
The area also received a £23m regeneration fund from the mayor of London.
Sir Michael said Croydon was seen as an attractive destination for investment due to its proximity to London and surrounding infrastructure, as well as being home to Westfield and Hammerson’s £1bn regeneration of Croydon’s retail centre.
The RIO team is also looking at several other Greater London regeneration projects: the Brent Cross Cricklewood regeneration; Silvertown, close to ABP’s investment in Royal Docks; and Old Oak Common.
A £400m leisure development in the East Midlands also secured investment this year.
The Peak Resort in Chesterfield is being developed by UK company Birchall Estates in a joint venture with US firm Grand Heritage Hotel Group, which revealed it would be investing in the project to kick-start construction on site later this year.