Innovative financing arrangements for urban transformation projects in the Netherlands

Research output: Contribution to conferenceAbstractScientific

Abstract

In current European practices, actors in real estate and urban transformation are highly dependent on one another. Contemporary inner-city transformation projects are particularly challenging in terms of collaboration and financing, as they need to address the need for housing as well as new demands in mobility, health, energy, climate adaptation and other sectors. Among other things, such cross-sectoral projects need to allocate funding from multiple public and private sources in a timely fashion, which is a challenge in its own right. Moreover, long-term urban transformation projects require large sums of up-front financing due to high land assembly, site preparation and real estate construction costs. Such financing is usually difficult to obtain. Project proposals face strict conditions from private lenders and investors, and limited availability of government funding, value capturing, and legal co-financing possibilities (Daamen et al., 2020). In many countries, these and other trends have spurred a quest for innovative financing instruments for real estate development (e.g. Squires et al., 2015). The Netherlands is a case in point. Here, innovative financing arrangements that combine the realization of public values and private return are believed to offer great potential for inner-city transformation projects. As part of a study funded by a Dutch government-industry coalition, we identified and assessed two of such innovative financing arrangements: Revolving Funds and Area Improvement Districts (Heurkens et al., 2020). The essence of the Revolving Fund is that public bodies – once private finance due to estimated risks in unavailable – pre-finance the realization of local public amenities and/or private real estate investments with sustainability objectives such as energy transition or shared mobility solutions. Such pre-financing has the precondition that the loan is repaid (with interest) to the fund, thus making it available for reinvestment—hence its revolving nature. The idea of an Area Improvement Districts is based on the financing mechanism behind Business Improvement Districts practiced in the US. These are aimed at obtaining a proportional financial contribution from property owners, investors and (potentially) developers for collective amenities or infrastructures in the area. These contributions are based on the expected increase in real estate value and the social impact of investments, which are pre-financed from a privately managed fund. Both innovative financing arrangements provide possible answers to, and might reinforce, increasing interdependencies between the public and private sector in urban planning and development (Heurkens et al., 2015). In addition, they aim to arrange and designate finance collectively in order to synthesize public and private values in the built environment. Potentially, they could prove to be beneficial for financing specific urban transformation projects with innovative sustainability solutions that have not yet proven to generate satisfactory returns. Nonetheless, both arrangements might also involve institutional changes – ranging from adapting government legislation, rethinking real estate financing structures, or changing actor behaviors and cultures – that prohibit a widespread adoption in practice. Moreover, one might ask whether such hybrid financing arrangements, and associated interdependencies such as shared risks, are desirable from a political and financial risk management point of view. Therefore, further research necessitates a closer examination of the features of, conditions for and effects of applications of innovative financing arrangements in urban transformation practices. References Daamen, T., Verheul. W.J., & Heurkens, E. (2020). GebiedsInvesteringsZone: Naar een praktijkexperiment [Area Improvement Districts: Towards a practice experiment]. TU Delft, commissioned by Ministry of the Interior and Kingdom Relations. Heurkens, E. Adams, D., & Hobma, F. (2015). Planners as market actors: The role of local authorities in UK’s urban regeneration practice. Town Planning Review, 86(6), 625-650. Heurkens, E., Hobma, F., Verheul, W.J., & Daamen, T. (2020). Financiering van gebiedstransformatie: Strategieën voor het toepassen van verschillende financieringsvormen bij binnenstedelijke gebiedsontwikkeling [Financing urban transformation: Strategies for the application of various forms of financing in inner-city urban development projects]. TU Delft, commissioned by Platform 31 programme Urban Transformation. Squires, G., Hutchinson, N., Adair, A., Berry, J., McGreal, S., & Organ, S. (2015). Innovative finance for real estate development in Pan-European regeneration. London: RICS.
Original languageEnglish
DOIs
Publication statusPublished - 2021
Event27th Annual European Real Estate Society Conference - Kaiserslautern, Germany
Duration: 2 Jun 20215 Nov 2021
https://2021.eres.org/

Conference

Conference27th Annual European Real Estate Society Conference
CountryGermany
CityKaiserslautern
Period2/06/215/11/21
Internet address

Keywords

  • Financial arrangements
  • innovation
  • urban transformation
  • Public-private partnerships

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