According to an obscure old Albanian proverb, patience is the key to paradise. And that certainly seems to be true when it comes to Birmingham’s efforts to regenerate a vital area of the city centre that currently falls a long way short of the image its name suggests.
Paradise – a 17-acre site sitting between the ICC and the Council House - has been the subject of several redevelopment schemes over the past 15 years that have fallen by the wayside for various reasons.
£500 million redevelopment project underway
However, this year finally saw the start of an exciting £500 million redevelopment project in the area which will include impressive offices, bars and restaurants, shops and a hotel. It will create new public spaces and restore key views that will integrate the site with the rest of the city centre, providing new pedestrian routes and public squares.
It’s clear that on the road to a new Paradise, there have been many challenges. Not least of which was how to finance the creation of Birmingham’s new commercial property utopia in times of severe austerity.
If the sums didn’t add up for all the parties involved, Paradise would be lost again.
That’s where the expertise of a team including James Dair, of Lambert Smith Hampton (LSH), and Peter Jones, Director of Property at Birmingham City Council, was worth its weight in gold.
James is a qualified accountant who worked in local government finance for 17 years. For seven years before joining LSH in Birmingham as Director in the Public Sector Advisory team, he led the city council’s financial work on the Grand Central and New Street development, and the Paradise redevelopment.
He also supported the early thinking around the Interchange and Curzon Street sites for the proposed HS2 project. At LSH he provides advice and support to public bodies to develop innovative and sustainable delivery models.
Peter Jones is the Director of Property at Birmingham City Council. He is working on a number of commercial and residential joint ventures including New Street Gateway and Icknield Port Loop as Birmingham sees this as the way forward to deliver major regeneration schemes.
Significant opportunity for future economic development
Said Peter: “The redevelopment of Paradise will make a major difference to Birmingham. It will finally close a chapter in the history of the city and will provide a significant opportunity for future economic development.
“All this has been achieved through a complex public/private joint venture with an innovative financial structure made possible by the ability to utilize the uplift in rates income to support prudential borrowing.”
Innovative public private partnership to fund major regeneration
The ambitious joint venture Paradise Circus Limited Partnership - a private-public joint venture with Birmingham City Council, with the private sector funding being managed by Hermes Investment Management and Argent acting as development manager – has a business plan that includes a TIF-style capital injection which has enabled the regeneration of Paradise to get underway.
James said: “The project depends on the ability to use innovative financial mechanisms in a public private partnership to fund a major regeneration scheme without exposing the council to financial risk.
“Also, by using its property asset as leverage, the council has been able to generate a long-term income stream which generates a commercial level IRR.”
Over the last 25 years the council has pieced its city centre back together, undoing some of the damage of the post war Manzoni Plan which gave us the 1970s Bull Ring Shopping Centre, the Central Library and the concrete collar of the inner ring road which constrained the growth of the commercial centre for 40 years.
The city is now seeing the fruits of public and private investment in infrastructure, shopping and commercial buildings with the consequent transformation of public perception.
The final piece of the jigsaw is Paradise. This ‘glorified traffic island’ – as some would describe it - sits in a key location alongside the Grade 1 listed Council House and the Town Hall and separates the new development in Westside (the International Convention Centre, Library of Birmingham, and Brindleyplace) from the established commercial centre on Colmore Row.
Peter said: “The site is a seriously dysfunctional area that needs to be redeveloped in order to re-establish connectivity and provide safe permeability across the city while providing the setting of some of Birmingham’s finest architectural heritage.
“In addition it has the opportunity to provide an environment to attract high quality commercial development and create a sense of place commensurate with a modern 21st century European City. The ambition for Paradise is to create a world class commercial development which will attract international occupiers to Birmingham.
“The aspiration is for a top quality architectural statement of intent for the city and a continuous flow of high quality public realm which will re-establish connections across the city.”
Joint venture to provide city with most important development in decades
James said: “For the last 15 years the council has been working on various iterations of a scheme to redevelop Paradise and the project is the most complex we have dealt with.
“In a different economic and political climate the council could have used its financial muscle directly to deliver the regeneration project, as it has done in the past. That option is no longer available and, in any case, experience tells us that some form of public/private joint venture is likely to produce a better all-round result by harnessing the delivery expertise of the private sector alongside the overarching governance structures and stakeholder management that the public sector brings to large scale projects.”
The result is an ambitious joint venture vehicle with a complex finance structure: Paradise Circus Limited Partnership (PCLP), which is established to demolish the existing buildings and deliver the infrastructure change to the highway network and the development platform for the commercial buildings.
It has a viable business plan funded by a working capital facility, capital receipts and ground rents from plot sales and an innovative TIF style capital injection facilitated by the Greater Birmingham and Solihull Local Enterprise Partnership (GBSLEP) Enterprise Zone.
As part of the overall deal, there is a commitment to build out the first phase on a speculative basis, comprising office buildings of 172,000 sq ft and 182,000 sq ft and the surrounding public realm. This first phase was placed in the hands of contractor Carillion in January 2015 and work is underway.
The annual borrowing costs are met by the uplift in the business rates generated from the redeveloped site in accordance with the Enterprise Zone principles.
James added: “The GBSLEP has agreed to allow the council to utilize the uplift in rates income coming from the redevelopment of Paradise to support the prudential borrowing costs. From 2021/22 the rates growth from Paradise provides a positive contribution to the wider investment plan for the LEP, providing a major source of investment for other schemes across the LEP region.
“After the prudential borrowing has been repaid, the Paradise scheme will contribute over £180 million of net business rates to the LEP for investment.”
In return for the injection of land assets into the PCLP, the council receives a long-term secure income stream from the completed redevelopment, which provides a commercial level IRR for the council.
The highly innovative financial solution, combined with a desire to deliver one of the city’s most important developments for decades, could at last see Paradise found in Birmingham city centre.