When it comes to joint ventures with private developers, registered providers are no longer prepared to be taken for granted. Shrewder and more assertive, they want to know – what’s in it for us?
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MAYBE it’s easy to be cynical about joint ventures (JVs), but for the guests at Northern Housing’s latest leaders’ roundtable discussion, it’s more a case of healthy scepticism.
The gathering was hosted by leading law firm, Anthony Collins Solicitors (ACS), with guests once again treated to a slap-up meal at Manchester’s Albert Square Chop House.
This time, the topic up for discussion was public/private partnerships, with a focus on the sector’s experiences, the lessons learned, and whether the assembled housing chiefs felt the JV model remained a tool for the future.
There was plenty to discuss between courses (and mouthfuls), and for ACS – which has worked on several large-scale JVs across the country – it was a chance for the firm’s Jane Trevithick and Victoria Jardine to gain first-hand insight into the sector’s thinking.
So, do JVs have a future? Well, the short answer is yes. But they are no longer the go-to form of partnership they might once have been; they’re a tool, and like any such implement must be wielded appropriately to the circumstance and desired outcomes for best effect.
Not so starry eyed
Times have changed; that was a key message, and housing associations have evolved too.
If ever there was a time when registered providers (RPs) became a little starry eyed at the prospect of working with ‘glamorous’ private sector developers, those days are gone. Today’s RPs are shrewder, no longer so readily swept off their feet, and have greater confidence in their abilities.
Joint ventures are no longer the go-to form of partnership they might once have been; they’re a tool and must be wielded appropriately.
“Historically, I think [developers] saw us as organisations that would be grateful for an opportunity, but our organisations have changed,” said Paul Gerrard. “We do our own outright sales, we do our own PRS, we do our own housing management; we’re very different businesses now.”
But that’s not to say that JVs no longer serve a purpose, or that private developers can’t be key partners.
Justine Gore certainly doesn’t think JVs are a “fad” that have had their day. “They’ve been around a long time, but the nature of JVs has changed and is changing as we go forward,” she said.
Collaboration was key for Sandy Livingstone. “It’s partnership rather than joint venture,” he said. “There’s more we can do together than we can do separately.”
There’s a question of agility and flexibility, too, of course. These have been fast paced years, with little in the way of long-term certainty, whether that’s in the policy environment or shifting market conditions (and that’s without throwing in the complexities of Brexit), so quite a few of the guests felt JVs were a little too rigid when some more supple form of partnership was required.
“Partnership means different things to different people,” Gore pointed out. “[But] if anything, I think there is a greater move to partnership than the JV. It’s very time consuming and can take years for things to come to fruition, just to sign on the dotted line, let alone putting a spade in the ground.”
Something else to consider is scaling up the partnership, according to Mike Simpson. “It’s a much more creditable path to engage with like-minded organisations, as we have in GM on a number of initiatives, rather than getting into a much more structured structure [such as a JV],” he said.
“It doesn’t stop everyone having the will to invest and all the rest of it, but there are certainly more agile ways of developing partnering approaches, which will pool the capacity and expertise that you need, but will also deliver that bigger bang in a much more focused… and more timely way.”
Rochdale Boroughwide Housing (RBH) is currently engaged with procuring a developer partner for its town centre regeneration plans and, as Clare Tostevin explained, the organisation was originally thinking about a JV, but came to realise that a contractual arrangement was more suited to its situation.
“A real key [part] of our thinking was the viability issue: where is the reward to share? Setting up the legal structure of a JV, if you know there’s a reward at the end of it to share, is very different to a project that you know is difficult to be viable,” she said.
It boils down to that eternal tension between social purpose and commercial return; for RBH it was about “making sure the social fabric is in there”, ensuring the community is part of the picture, and getting the right mix of housing and tenure types that suit the needs of the locality. A further factor was to bring in some of the expertise that RBH itself lacks, but it was felt that on this occasion a JV wasn’t necessarily the best way to achieve these ends.
“It depends on your purpose really,” Tostevin added.
Such points resonated with Livingstone. “You need to walk in with your eyes open. Be very clear what it is you are trying to deliver,” he said. “We are going to do [a JV] north of Preston in a rural village. If we don’t do it, the private sector will maximise sales. The whole site would have gone out on sale. Because we are active, two thirds will be affordable housing, and for that village the only way it can be sustained is through an opportunity for people to stay.”
Purpose is everything, then; whether that’s in forming a JV or a less structured partnership approach. But that leads on to a key consideration: different partners will have different expectations, and somehow these need to be meshed into a functioning whole; where the different expectations and goals are not necessarily fused into a singular purpose, but rather allowed to move in coordinated unison as parts of a well-oiled machine.
As with any machine, it’s at the design stage where malfunction is tooled in; often, when JVs – or indeed any partnership – fail, it’s because they’re born of a ‘marriage of miscommunication’ rather than any ‘ulterior motive’. Of course, that’s not to say that sometimes developers won’t be looking to unfairly maximise their own advantage.
“This kind of sharing 50/50 risk and profit, I wouldn’t say is a level playing field at all at the end of the day. I do feel that developers are using RPs to leverage in finance for the upfront funding, which is more about sales and their exposure to that [market risk],” Gore said.
Briefly donning the old developer hat he wore before joining the housing association world, Mark Howden admitted: “It’s fair to say we always go to RPs because we are looking for the RP to take the risk,” he said. But there is more to it than that.
“There’s a JV and there’s a JV,” he added, explaining that Peaks & Plains Housing Trust recently walked away from JV discussions because it didn’t have the makings of a good deal, gave them no say in tenure mix, and didn’t appear to offer any meaningful partnership.
“We asked what’s in it for us, and [the developer] couldn’t articulate that,” he said. “We have done several successful JVs, and I have found that when trying to do any joint venture, [it’s about] articulating back to each other what you expect to get from the deal. Until you’ve got that, you are both under a misapprehension that it is going to work for you.
“Unless you say, [what works for you], I think the joint venture will never be a joint venture, it will merely be this abrasive relationship that falls apart as soon as you get into commercial discussions.
“It’s the honesty; thrash it out, agree how you go forward, I do think you get the lawyers involved because you’ve got to have everything absolutely nailed down, and then hopefully you never look at that again, but you’ve got to protect yourself.”
Howden’s wasn’t the only organisation that has walked away from a potential JV because the proposals either didn’t work, or because the proposals didn’t appear to offer any genuine partnership. And that proved a key message, don’t feel obliged to enter a JV relationship, and don’t be afraid to walk away, but perhaps most importantly of all, be assertive – put those expectations down on the table right at the start.
We’re back to the point about ‘marriages of miscommunication’: they are much easier to avoid than to retroactively fix.
“There are many different types of joint ventures and collaborations out there,” Trevithick said. “You need to be clear about what your objectives are to start with, and then that almost enhances and empowers you to be selective about what kind of opportunity you get involved in.”
Jardine added: “The heart of this is a relationship, whether it’s a formal joint venture, a contractual joint venture or it’s just an understanding, that’s just the dressing, really. Alignment of objectives, who is putting what in when, and who is getting what out when, and we’re getting under the skin in where that sits…
“It is a relationship. And no one wants to talk about the divorce when they’re negotiating a marriage, but as lawyers it is really difficult to come in once the terms are signed and the promises have been made and then try and reverse engineer some realism into the arrangement, so the housing association doesn’t find its back against the wall with no negotiating power.”
In some respects, the discussion could easily be taken as fuel for the cynical view: that developers are looking to exploit housing associations for their own ends, to furnish the finance, to bear the risk, to provide a veneer of public good, and take the flak if things go wrong. But while these are things that RPs certainly need to guard themselves against, it is by no means a foregone conclusion. On the contrary, they can result in mutually beneficial and productive relationships.
“If you get the right investor model, then it’s there – but you’ve got to recognise that we want to make money,” Howden said, again harking back to his pre-RP days. “That was thrown in our face – ‘oh, you’re only here for the money’. Yes, you’re right, but there’s ways of making profit that’s more equitable than others. I think that’s got to be understood. It’s a trust thing; you’ve got to get it all on the table.”
Swimming in a policy pond
However, just when you think you’ve nailed the discussion on the pros and cons of establishing a JV with a private sector partner, along comes a timely reminder that RPs operate in a policy environment that inevitably stirs the mix.
As Salford’s metro mayor – and Greater Manchester’s housing lead – Paul Dennett pointed out, the recent launch of the combined authority’s housing strategy sets out a lot of asks for the city region’s housing providers.
“You’re operating in a policy environment… so in many respects you don’t have absolute autonomy around what it is you are being required to deliver here,” he said. “You are having to conform to this system we’ve created that will inform planning decisions at committee level, but also there’s the soft power play around all this in terms of politicians wanting certain things.”
The city council, he explained, has set up its own wholly owned development company to further its efforts to tackle the housing crisis by building “truly affordable homes that people can genuinely afford”.
Dennett’s reasons might be sobering, in some respects, for RPs – some born of the transfer of council housing stock – as they negotiate with private developers over who builds what and where, whether in JVs or less formal partnerships. They are no longer set to be the only players in town – as the mayor pointed out, “we’re back in the market so to speak for building houses”.
“[W]e’ve got really frustrated with all the benefit-cost ratio, green book appraisal stuff you have to go through when you are working with an RP to access ground for infrastructure and to build social rent and affordable homes,” Dennett said. “So we’ve moved into the space where we want to use our land holdings to create assets that generate a return for the local authority and help us offset austerity and local government cuts as well.”
He added: “That’s the space I feel I should be in, because I think it serves the interests of the people in the city better than potentially pooling profit from joint ventures on housing. But given the scale of the challenge from the policy environment – 201, 000 homes we’re going to have to build in Greater Manchester between now and 2037 – there’s no way local authorities are going to be able to do that on their own. So joint ventures and partnerships have to be part of the future to deliver that.”
But, in an echo of earlier discussion, Dennett said that before you begin to look at putting together a JV, you must be clear about what you want to achieve. “I am certainly clear from a council point of view, but it’s interesting to listen to you from your own housing associations point of view,” he said.
A good joint venture, for all the commercial realities and the leveraged social purpose, boils down to people. As Jardine said, they’re about relationships – and those aren’t going out of fashion any time soon.
Jane Trevithick, housing property partner, Anthony Collins Solicitors
Victoria Jardine, housing corporate services partner, Anthony Collins Solicitors
Helen Reddington, head of sales, Sovini Group
Paul Dennett, City Mayor, Salford City Council
Paul Gerrard, director, ForLiving
Justine Gore, head of development, Yorkshire Housing
Mark Howden, director of place, Peaks & Plains Housing
Sandy Livingstone, executive director of property, Onward Homes
Mike Simpson, head of growth, One Manchester
Clare Tostevin, director of growth, Rochdale Boroughwide Housing
Mark Cantrell, Crosby Associates Media