A string of local authorities from Brixton to Manchester are looking at partnering with private sector firms to unlock development through local asset backed vehicles, according to Kier’s property director.
Leigh Thomas said a growing number of local authorities are moving to the LABV model, which sees the creation of a long-term joint venture with a private sector partner.
A basic model sees the public body transfer land or assets into the JV, which the private sector partner matches with cash or equity.
Speaking at the Forecasting for Construction conference yesterday, Mr Thomas said there are “lots of potential LABVs coming out now”, including in Brixton, Manchester and Northampton.
“I think the local authorities are getting there,” he said. I think they are starting to understand that the only thing they have to play with now is their assets.
“There are now quite a few of these LABVs. It’s important for the construction industry to be talking to local government.”
Kier was named preferred bidder on the £240m Watford Health Campus in August, with final sign-off expected by the end of the year. The 375,000 sq ft mixed-use masterplan includes almost 700 new homes and a new hospital.
The 50:50 jv, being delivered under a LABV, sees Kier offering services and equity in partnership with Watford Borough Council, West Hertfordshire NHS Trust and Watford Football Club. Construction work will still go out to tender.
It has come after a plan for a £300m PFI deal for Watford Hospital was shelved.
Mr Thomas said contractors looking to partner up need to be talking with local authorities before they go out to OJEU, “so they structure the OJEUs in the right way”.
But he also insisted there is central funding available, such as £16m for part of the Watford masterplan, and said the Watford scheme shows that “where you can create certainty, you can create funding”.
“It’s about giving the public sector the confidence that you can and will deliver this,” he added.
Glenigan’s economics director Allan Wilen added that a significant barrier to overcome is local government’s aversion to risk.
Mr Wilen also pointed out that with 430 local authorities across the UK, contractors need to be selective to find the right partner.
Mr Thomas said pinpointing potential councils is partly about going out and doing ‘soft market testing’, seeing where councils are looking to create value from their land and choosing the councils you know you can have a long-term relationship with.
However, there were different views from other speakers at the event earlier in the day.
Steve Beechey, head of investments at Wates, said there are few alternatives to PFI being taken up by local authorities.
“There are very few of these [LABVs] out there that are actually being delivered,” he said.
Mr Thomas said it is likely to be around five years before Kier can say whether their Watford partnership has been a success.