UK: Urban Regeneration Where To Now?

Last Updated: 8 June 2010

When the economy took a nosedive in 2008, it was hoped that urban regeneration projects would help to pull the property industry through the worst. However, the drying up of bank funding and the expense of equity funding inevitably had an adverse effect on urban regeneration projects and funding became an issue for urban regeneration just as for everything else in 2009. There was some good news for some:

Town Centre Regeneration Fund

The Scottish Government announced the creation of and allocation of the Town Centre Regeneration Fund. £60m has been allocated to projects in Aberfeldy; Ayr Renaissance North; Biggar Corn Exchange; Bridgeton; Dumfries; Kirkcaldy; Lochee; Lochgelly; Maryhill Burgh Halls; and Tarbert (Loch Fyne).

The new funds have been allocated "to support community and business leaders to regenerate and grow our town centres". The funding is intended to "help our town centres adapt to modern markets, and supply the access, mix of facilities and services, and environment that will meet the needs of local communities and businesses."

The Housing Finance Corporation funds boost

As well as the cash allocation to the chosen town centres, the Scottish Government and the European Investment Bank announced that Scottish Housing Associations were to benefit from a £50m European lending facility. The EIB funds will be provided to Housing Associations through The Housing Finance Corporation (THFC), an independent, specialist, not-for-profit finance company that makes loans to over 120 regulated Housing Associations throughout the UK. The Scottish Government has pledged that, as well as helping housing associations to access new sources of lending, they will invest more than £1.65bn over 3 years in affordable homes across Scotland.

That was the good news. However, with a General Election looming, and drastic budget cuts to contend with, the hunt is on for alternative methods of funding urban regeneration projects. Glasgow City Council has recently created a new subsidiary to plug the funding gap and recent discussions elsewhere have turned to deferred receipts mechanisms and TIFs.

Opco / Propco

The Council recently announced the creation of City Property (Glasgow) LLP which will buy a 1500 strong portfolio of non-operational properties at a price of £120m. These funds will be used to build primary schools and nursing homes. Whilst the Council cannot borrow against its income stream, its subsidiary can. Revenue from the portfolio will be used to service and pay down the debt provided by Barclays.

Deferred Receipts Mechanisms

Deferred receipts mechanisms are not new but are now being promoted as one of the possible ways of keeping urban regeneration projects moving. Deferred receipts mechanisms may be employed where the public sector is disposing of heritable property. They operate by deferring the initial acquisition costs for the developers by using such methods as staggered payment agreements, profit share arrangements, and joint venture companies. The Oatlands model developed by Alasdair Fleming and his team at Brodies employed an innovative version of deferred receipts mechanism utilising a long leasehold model to facilitate the regeneration of a large part of the east end of Glasgow.

All of the deferred mechanisms available have strengths and weaknesses which have to be balanced against the particular requirements of the parties and the development concerned. They also involve an element of risk as inevitably, not all developments will perform as successfully as predicted and losses may have to be borne. It goes without saying that all parties concerned must be well advised and guided through the process to ensure that the allocation of risk and profit are in their best interests.


Tax increment financing schemes (TIFs) are the hottest new topic in urban regeneration. Under a TIFs scheme, anticipated tax revenue would be used to fund the infrastructure which would support future development, that development in turn resulting in increased tax revenue. As with the funding of any development project, TIFs are not without risk as actual revenue generated may not add up to the predicted amount and so provision must be made for dealing with any deficit.

TIFs have proved very popular in the United States but have still to prove that they can work on this side of the Atlantic. Discussions are starting to take place as was evidenced by recent press reports of Land Securities meeting with Glasgow City Council to discuss the potential use of TIFs to aid the extension of the Buchanan Galleries. Brodies also took part in similar discussions with North Lanarkshire Council over the possible use of TIFs at the Ravenscraig site.

And, as reported by the Scottish Property Federation, Edinburgh City Council has recently endorsed its business plan for a TIF scheme in the waterfront area of Edinburgh which could be the first UK TIF scheme to go ahead. The intention is for the Council to fund infrastructure in the area through borrowing by traditional methods which will then be repaid incrementally from the proceeds of future business rates in the area. The plan must now be approved by Cabinet Secretary John Swinney.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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