Local areas often own undeveloped land which can be used in a variety of ways to raise funds to invest in infrastructure.
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Local areas often own undeveloped land which can be used to raise funds to invest in infrastructure. This is one way that local assets can be directly leveraged to fund local energy projects but can be used as a lever in planning key development sites to deploy low carbon technology. It is possible to raise funding on developed land if used as a pure funding route.
- Finance source: Undeveloped land could be used as the local authority’s contribution to a joint venture with private sector developers, or could be used as security for borrowing to support the funding required for project development
- Funded project phase: Plan, design, build
- Typical project size: Up to £10 million
- Match funding: Could be used as the local authority’s contribution to joint venture development
- Se*curity*: Land can be charged as part of the local authority’s security package for borrowing
- Speed of accessing finance: Dependent on commercial structure, many possible options
There are various ways of using the land for this purpose including:
- Selling the land outright to raise upfront capital.
- Leasing the land to the private sector to raise capital over time.
- Entering into a joint development agreement with private sector partners where the city provides the land (or develops part of the infrastructure), the private partner finances the development (or part of it), and then both parties share in the profits in a negotiated ratio.
- Revenue-generating infrastructure assets, owned by the local authority, can also be sold on a perpetual or limited life basis to raise money to reinvest in other infrastructure assets or with a contractual obligation not to pay money to the public sector but to reinvest in the infrastructure asset to improve public services.
- Limited life sale is a variant of the common ‘sale and lease back’ structure, where an asset is sold but the seller then makes ongoing lease payments to the new owner, thus continuing to benefit from use and converting a capital asset into an operating expense.
- Local authorities can separate land ownership from the right to further develop that land. Then, the right to further develop the land can be sold to a private entity.
A project sourcing finance through this approach has a strong need to demonstrate value for money as the asset sale is a one-time income flow, unless subject to further lease conditions.
Land resources are limited, so, as a general rule, asset sales of this kind have been viewed as a temporary financing expedient and fiscal experts have warned local authorities not to become dependent on asset sales as a significant or continuing source of capital financing
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