community land partnership june 2010
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Introducing the Community Land Partnership
Chris Cook
29 June 2010
Asset-based Finance
There are two conventional ways of raising finance......
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....Credit and Investment
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Investment is either through a Limited Company....
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....a 19th Century legal dinosaur
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...or loans secured by legal claims eg mortgages
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But there’s a new furry animal out there....
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...the 21st Century Limited Liability Partnership (LLP)
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An LLP is a corporate body with limited liability....
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...and...errrr...that’s it!...
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As far as the Tax Man is concerned it is a Partnership
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It’s an “Open” Corporate where we can work with each other
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... even without a written agreement
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Hilton Deal 2002
Capital Partnership LLP10 UK Hotels
Gross Revenues
Hilton GroupCapital User
Consortium LLP Capital Provider
BankProperty
DeveloperHotel
Specialist
% %
%%%
Capital Partnership
Capital PartnershipCapital Partnership
InvestorsInvestors
CustomersCustomers
Managers
CustodianCustodian
% %
£
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“Equity Shares” - % age shares in revenues or production...
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...or Units - redeemable in production
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Example: “The Art of Flirting” – a film incorporated as an LLP
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The actors received “nth’s” of the gross revenues...
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...I got 5%...and the producer the rest...
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...except that we needed lights, cameras, pizza, coffee......
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Two Capital Partners invested £10k for 20% of revenues....
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...if there are any
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Art of Flirting LLP
Art of Flirting PartnershipArt of Flirting Partnership
Financial Capital(Investors)
Financial Capital(Investors)
ViewersViewers
Human Capital(Actors, Producer, Me)
CustodianCustodian
% %
£
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Everyone was on the same side
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Example: Albion Trust...a charity
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..who provides affordable office space for social enterprises
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...due to demand they bought a disused church next door
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...and plan a £4m development
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But if they borrow, the rents will be unaffordable
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Solution? An Albion Partnership?
Albion PartnershipAlbion Partnership
InvestorsInvestors
TenantsTenants
Managers
CustodianCustodian
% %
£
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Let’s see how a Community Partnership might work...
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Conventional development is based on transactions – the “Four B’s”.....
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Borrow, Buy, Build and B...er Off...
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A Community Land Partnership
Community ProjectCommunity Project
InvestorsInvestors
OccupiersOccupiers
Managers
CustodianCustodian
% %
Rental
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First, the land is transferred to a Custodian
LandLand CustodianCustodian
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...and the Land Owners become Investors
LandLand
Land OwnerLand Owner
CustodianCustodian
Land Value
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...the Council invests the value of planning permission (as well as land)...
LandLand
CouncilCouncil
CustodianCustodian
Value of Planning permission
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...the Contractors invest at least their profit margin...
LandLand
ContractorsContractors
CustodianCustodian
Profit Margin
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...and Risk-Takers provide £ to pay Contractors’ agreed costs...
LandLand
Risk-TakersRisk-Takers
CustodianCustodian
€
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....while the Developer invests “Intellectual Capital” of concept and services...
LandLand
InvestorsLand-owner, Council,
Contractors, Risk Takers
InvestorsLand-owner, Council,
Contractors, Risk Takers
DeveloperCommunity plus help
DeveloperCommunity plus help
CustodianCustodian
Value Value
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When the development is occupied...
Community ProjectCommunity Project
InvestorsInvestors
OccupiersOccupiers
Managers
CustodianCustodian
% %
Rental
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Investors may keep Units for their own pension...
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...or sell them to Investors or Occupiers who wish to invest in their own homes
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Occupiers maintaining the property themselves may receive “Sweat Equity”
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For Investors it’s an index-linked, property-based investment...
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Everyone has a stake in the outcome....
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....with an interest in high quality, energy efficient housing ....
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....because this lowers the cost of occupation over time ....
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....which makes the Rental value higher and makes Equity Shares more valuable
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So we go from a transaction model...
DeveloperDeveloperLand
OwnerProperty
BuyerProperty
Buyer
£ £
PropertyBuyer
PropertyBuyer
£
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...to a service provider model where land stays in community ownership...
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...and service providers provide services the community needs
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Community partnerships are not a magic bullet
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Conventional finance requires binding contracts....
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....partnership finance requires consensual agreement...
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...but there may be no magnetism..
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Communities may find they have the wrong partner...
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...and partners fall out...
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...so things can still go Pear-shaped
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A Community Partnership is not an Organisation...
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...it does not own anything, do anything, employ anyone, or contract with anyone...
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...it is simply a framework within which the stakeholders self organise ...
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...with a mutual interest in developing land sustainably and affordably.
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A new class of Community Equity created by the community for the community
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Thank You
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