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Real estate and smart property management

Consolidation of local government services under the Public Service Transformation initiative is focusing minds on how best to manage public sector…

Consolidation of local government services and assets under the Public Service Transformation initiative is focusing minds on how best to manage public sector assets in a way that supports government aims to promote growth and get public sector organisations to live within their own means.

We have had a number of dealings which seek to promote the “one public estate” concept and highlight here some points to consider from our experience.

It is worth noting that according to central government statistics the estate is extensive – central and local government together own property worth £370bn, with annual running costs of over £20bn. The properties range from offices to laboratories, prisons, courts, hospitals and airfields, reflecting the wide spread of functions the government supports.

The overriding aim is therefore for councils and other public sector organisations to join together to use their assets more efficiently to deliver efficiencies. 

The principle involved is about selling off unnecessary buildings, and making more efficient and streamlined use of the public estate. It will see partnerships of local authorities looking to deliver major service transformation, large-scale economic growth and efficiencies across local authority boundaries, city-regions and devolved areas.

Transformational funding may be provided to assist the focus on shared facilities and buildings. This is the case through the One Public Estate initiative under which aspiring organisations to the scheme can make an application for financial support as and when a new tranche of funding is made available. Police authorities continue to have access to a police innovation fund to which application can be made for collaboration projects and fire services have had access to the Fire Transformation Fund. Access to funding of those schemes however tend to require more than simple sharing of property to be demonstrated, but a more intensive form of collaboration to be demonstrated. Creation of a landlord and tenant relationship in itself is not enough.

We have been involved recently with consolidation of and sharing buildings between blue light services, as well as related health and social care integration through shared buildings. Key factors in advising clients in this area are:

  • The suitability of existing premises for sharing and their ability to be adapted as opposed to new build options;
  • The cost in terms of running costs of “second hand space” as opposed to new build;
  • Assessing and then addressing the risk factors in any new build projects;
  • Organising legal agreements to facilitate funding new projects from the sale of existing assets which might ideally be contemporaneous;
  • Striking a reasonable balance of cost against risk and short to medium term security of tenure and return on investment;
  • Detailed consideration of existing portfolio ownership is essential with thought given to existing contractual arrangements particularly occupational interests;
  • Collating useable and accessible data which provides information of use and relevance to the decision making process and assessment of risk can’t be underestimated;
  • Dealing with conflicting requirements in certain circumstances and finding working solutions with particular regard to health and safety and security as well as systems integration;
  • Considering the potentially broader and strategic joint venture aspect to these projects;
  • Adapting particularly in the present challenging office market environment to flexible working practices and space planning to drive efficiencies and economies of scale;
  • Putting in place legal structures that are flexible enough to permit change should economic conditions require;
  • Apportioning risk and benefits fairly in any strategic partnering arrangements;
  • Addressing risk with construction industry contractors in a balanced way particularly taking account of due procurement process and any state aid implications of certain types of development;
  • Considering short or longer term occupancy arrangements by non public sector organisations where appropriate and flexible or more secure letting arrangements;
  • Aligning councils' potential regeneration objects in either town centre or more peripheral locations with the concept of one public estate which may reduce risk factors more prevalent with purely private sector regeneration projects;
  • Utilising funds generated by public estate sales to fund and in some instances “kick-start” strategic housing and regeneration projects and considering the variety of funding options and structures that can be considered;
  • Considering the one public estate concept in respect of the construction and upgrade of educational, leisure and sport facilities.

There are often no straightforward “text book” answers to the issues that arise but problem solving depends on expertise in built environment public sector projects from the consultants (not just legal of course) involved in projects.

In terms of the delivery of projects under One Public Estate, or estate consolidation projects of a similar nature we have seen that one size does not fit all. A number of projects have led to the establishment of property service companies which are essentially shared service organisations. These companies are then empowered to use economies of scale in terms of procuring solutions for the management of the estate of the participating organisations and reducing FM costs.

The property company also then acts as a hub to consolidate the information around the combined estate, look at surpluses and need and try to match these requirements to ensure any needs for additional space are met through the existing estate.

Other schemes have gone further and have transferred capital or assets into a new corporate vehicle such as an LLP or limited company such as the development of a new £15m headquarters by Derbyshire FRS and Derbyshire Police. This has had the benefit of protecting the capital investment of each party and delivering income to the parties in line with their capital share.

Emergency service estate collaboration could now form part of the general duty to collaborate which is currently making its way through parliament. It provides particularly fertile ground in that mapping exercises carried out on behalf of a number of emergency service organisations have shown considerable overlap, and an ability to reduce the footprint of the estate without affecting response times or frontline services.

Some ambitious organisations are also looking at further partnerships that can deliver further returns from the surplus estate and the renewal or replacement of old facilities by engaging a partner to participate in a Local Asset Backed Vehicle structure. LABVs generally involve a private investor or funder matching the value of the estate contributed to the venture by the public sector partner by way of new capital to deliver increased returns which are then shared.

A body of knowledge and expertise is there though which can be accessed in how arrangements can be made to work to deliver functional as well as cost  effective solutions so a modern, fit-for-purpose, and efficient core estate, which provides value for money for the taxpayer, increases sustainability and enables improvements in the way the organisations work is achieved.

It is very satisfying to be involved in projects that set out to and then achieve these objectives and it can only result in the extension of the one public estate concept in our view.

A version of this article appeared in Local Government Lawyer.