Public Sector Assistance for Property Industry
With the publication of a new report showing that the volume of commercial property development has slowed significantly due to the recession, it is essential to be aware of any assistance that may be available from the public sector.
The report from commercial property experts Ryden highlights that the recession is undoubtedly affecting business confidence which has hit all three commercial property sectors – industrial, retail, and office. Using the office sector as an example, in Edinburgh there are no new planned office schemes due to be completed between 2010 and 2012 and in Glasgow there is no grade A office space due for completion in 2010 and 2011. This is likely to lead to a shortage of grade A office space once the economy picks up.
With finance for property developments through traditional banking routes at an all time low, many developers are struggling to find the funding required to permit development and investment to take place. However developers looking for alternative funding should consider what options are available from the Public Sector. The Scottish Property Support Scheme (X 155/2008) allows the Enterprise Networks and Local Authorities to support the development of new or existing premises and buildings for commercial purposes by the private sector, where market failure exists. Examples of market failure include where the cost of development exceeds the end market value, or where risk-aversion prevents developers from investing in a project.
The traditional approach whereby the public bodies own property and seek developers to develop the property is not the only option under this scheme. Proposals can also be submitted to Local Authorities or Enterprise Networks by developers in certain areas for bespoke developments where there is a specific project with an end user in mind. More importantly, particularly in the current market, developers can also seek aid for speculative developments.
The support can be provided in a number of ways including: development grants (to bridge a gap between the actual cost of a project and the market value); subsidised loans; interest rebates; guarantees; joint ventures and the provision of services to assist with any project. Developers must provide a financial contribution of at least 25% of eligible project costs, either through their own resources or by external financing, in a form which is free of any public support.
Eligible costs under this scheme can include the price of the land, the cost of construction and infrastructure, finance charges, development fees (where the developer does not own the land being developed) and professional fees (such as legal expenses and design fees) when these costs directly and exclusively relate to the project.
Although the scheme operates throughout Scotland, the support available is dependant on a number of factors including the location of the development as well as the size of the developer and of the ultimate user of the completed development. It is also reliant on funding being available within the existing public sector budgets. That having been said in the current climate the ability to provide any assistance to developers can only be good news.
Further information
For further guidance on issues raised in this ezine or for any other property finance matter, please contact James Blair, Robert Maclean or Audrey Cameron.
This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.
