PlaceEXPO: City Region Investment Strategies: Chrysalis in the Liverpool City Region

Chrysalis in the Liverpool City Region

Presentation to placeEXPO:

Looking back, looking forward

17 June 2014

Introducing Chrysalis – a JESSICA fund

• Igloo Regeneration Ltd, GVA and Royal Bank of Canada Capital Markets

• GVA – investment advisers

• Igloo – fund managers

• RBC – credit advisers

• Appointed by North West Urban Investment Fund Board to manage the Liverpool City Region Urban Development Fund (March 2012)

• Chrysalis Fund (http://www.chrysalisfund.co.uk)

• Private fund management team with strong public sector governance

• Deputy Leader Wirral / Regeneration Portfolio Holder Liverpool Council Directors of Regeneration at St. Helens, Wirral and Liverpool

JESSICA - “not the only show in town”

Project JESSICA in North West England (1)

• JESSICA (Joint European Support for Sustainable Investment in City Areas)

• Chrysalis is Merseyside’s JESSICA Urban Development Fund (UDF)

• JESSICA invests into a range of private and public projects, via debt or equity

• Targets projects in the development or construction phase to create new floorspace and jobs

• It is a financial (engineering) instrument that makes repayable investments

• Not grant or ‘gap funding’ and once invested is returned and invested again

• Investment Policy is prescribed by European Regional Development Fund Programme 2007-2014 – essentially Offices, Industrial, Warehousing

Project JESSICA in North West England (2)

• Established for a 10 year period with all funds to be committed by December 2014

• Initial capital of £34m contingent loans made available for on-lending to projects

• UDF invest upto 50% in a project, alongside other sources of match funding

• Can be private or public sector match

• Rationale is to focus on market failures inherent in urban regeneration

• Demand side (project developers that carry out urban regeneration projects)

• Supply side (investors and lenders who provide finance)

• Not seeking to replace or crowd-out private investment but to intervene where market failure exists – UDFs ESTABLISHED TO TAKE GREATER RISK

Project JESSICA in North West – Summary

• Merseyside has its own dedicated Urban Development Fund

• £34m ‘seedcorn’ to invest in urban projects by December 2014

• Recycles and allows public funds to be used again (and again!)

• Opportunity to grow fund size and extend scope of eligible investment

Eligible Activities

• Site clearance and remediation

• Development of site specific infrastructure and site servicing

• Including site specific IT/broadband, utilities, energy infrastructure, site specific transport facilities (eg a connecting road to a site)

• Construction of new buildings and/or renovation of existing ones, including landscaping and public realm works

Eligible Expenditure

• Land acquisition• Cost of purchasing land not to exceed 10%

• Building acquisition• Cost of acquiring a building is there is a direct link between the purchase and the

objectives of the project

• Site investigation and preparation• Cost of preparing the land for development, including the cost of site investigation,

remediation, reclamation, decontamination and demolition and preparation

• Building and construction• External and internal refurbishment and conversation of existing buildings, new build

premises, provision of services (eg infrastructure) and landscaping

• Plant and machinery• Tangible fixed asset used for purpose of providing a service for the project

• Fees• Fees and salaries for design and supervision not to exceed 12.5%

How it works in practice

State Aid Exemption Notice (@ Project Level)

• Chrysalis can invest in a number of commercial and sub-commercial means:• Senior loans, at or below market rates• Subordinated loans• Equity• Upside risk sharing: preferential returns• Upside risk sharing: priority returns• Upside risk sharing: timing of investment• Downside risk sharing: first loss position

• Chrysalis can combined repayable investments with grant fund

• Fair Rates of Return must be established and verified regardless of condition

State Aid Exemption Notice (@ UDF Level)

• Chrysalis can receive further public and private sector investment into the UDF

• Investment is made in return for a share of potential ownership in the UDF

• SAE Notice allows for private investment to be made on non-pari passu terms with the public funds in the UDF, which provides an advantage to the private investors compared to normal market conditions

Chrysalis - DELIVERING RESULTS

Completing a stalled development:Watson House & Central Village

Central Village is part of the city’s plan to “stretch” the city centre – but development has stalled twice

Chrysalis loans are for:

1.completion of the Lewis’s department store

2.renovation & extension of Watson House

The outcome will be:

-High quality public realm

-New Grade A office space

-Realisation of the City SIF

Supporting the Visitor Economy:Arena and Conference Centre Extension

• 8,100 square metre extension of Echo arena and conference centre on the King’s Dock

• Development cost of £40 million

• Chrysalis loan of £8 million to support construction

Supporting inward investment ACL – 89-90 Duke Street, Liverpool

• 5,575 square metre redevelopment of 2 buildings

• Development cost of £10 million

• Chrysalis loan of £1.4 million to support construction

• State Aid Exemption route

• Chrysalis loan of£3.5 million

• Total investment programme of £20 million

• Approximately 160 jobs• Market leading technology• Support for the city

region’s green economy credentials

Supporting foreign direct investment:Tratos, Knowsley

Entrepreneurial Italian company seeking expansion amidst complex financing arrangements

In the Pipeline:Liverpool Life Sciences Accelerator

• Proven need to retain life sciences companies

• 7,300 square metres laboratory, write-up, office and networking space to companies in the life sciences sector

• To be built on the Royal Liverpool hospital site

• Dedicated incubation manager to provide accelerator function to new SMEs

• Project cost of £20m

• Chrysalis senior loan of £9m

Delivering on the Knowledge Quarter’s aspirations

Enabling growth industries: Hornhouse Lane, Knowsley

• Latent demand for high quality space – esp. with arrival of the superport

• 10,000 square metre speculative warehouse on Knowsley Industrial Estate

• £6 million project cost, Chrysalis loan of £2.4m

Unlocking latent demand: logistics & warehousing

Looking forward: Need for coordination & creativity

COORDINATION, CREATIVITY & COMMERCIAL RIGOUR

The Future…?

• Pooling of public funds to attract private capital leverage

• Northwest started an experiment of pooled funds for place-based integrated economic development

Chrysalis in the Liverpool City Region

Presentation to placeEXPO:

Looking back, looking forward

17 June 2014