How We Did It: Pearl 2 partnership

In response to increasingly scarce funding, a Lancashire council has set up a joint venture with a local developer to decrease its dependency on the public purse and renew its Victorian housing stock.

Thirteen terraced properties were remodelled into seven new homes. Pic by Mike Poloway/UNP
Thirteen terraced properties were remodelled into seven new homes. Pic by Mike Poloway/UNP

Project: Stanley Street, Nelson
Organisations involved: Pendle Borough Council, Barnfield Construction

Nelson sits on the Leeds & Liverpool Canal among the hills of east Lancashire. Once famous for its textile mills, the town has a huge oversupply of two-up, two-down workers' terraces, many of which have fallen into disrepair. Over the years, Pendle Borough Council has engaged in numerous programmes to bring the terraces up to a good standard. In December, however, the first terrace to be refurbished by a joint venture comprising the council and local developer Barnfield Construction was completed.

The Stanley Street refurbishment project is part of the wider regeneration of the Whitefield area of Nelson, which comprises about 2,000 homes. The council originally planned to demolish most of the area's terraces to make way for new housing, but following opposition from heritage groups and two public inquiries, the then secretary of state John Prescott ruled that the terraces should be retained.

"It was the council's intention to demolish this area," says Brian Cookson, its executive director of regeneration. "The heritage lobby stopped that. But there's a huge problem still to be dealt with: 70 per cent of our housing stock is two-bed millworkers' cottages. They are not lovely artisans' cottages: they were thrown up with cheap materials 120 years ago and they have deteriorated over a lot of years."

With its plans for Whitefield in tatters, the council looked again at how it could improve the area while respecting its heritage. The first element of this work used funding from the now defunct housing market renewal pathfinder Elevate East Lancashire. But the council soon realised that it couldn't rely on the funding in perpetuity and set about finding a developer to share the costs, risks and profits of various regeneration projects across the town.

Following a year-long European procurement exercise, Barnfield Construction, with which the council had worked on a previous joint venture called Pearl, was appointed. The Pearl 2 partnership is effectively a local asset-backed vehicle (LABV), with the council contributing land and buildings, as well as coordinating public funding streams, and its private partner contributing money and construction expertise. Crucially, the developer also acts as contractor, which provides the company with an ongoing revenue stream from public investment in the project. As a private company, it can accept lower profit margins than many publicly floated, national developers would be willing to do. "You wouldn't get a developer wanting to come in and do it and then employ a contractor because the profit margin is marginal," says Tim Webber, the firm's managing director and chairman.

The Stanley Street project is the first scheme that Pearl 2 has completed. It comprises six four-bed and one two-bed homes, remodelled from an existing terrace of 13 millworkers' houses. In addition to resources contributed by the partnership, the project received funding from national regeneration quango the Homes & Communities Agency (HCA), Elevate East Lancashire's successor body Regenerate Pennine Lancashire and good causes distributor the Heritage Lottery Fund. Over half the homes have been sold, with the four-bed houses going for £150,000. The council originally bought the properties for £4,000 to £20,000. "If we'd said five years ago that these would now be worth £150,000, we'd have been laughed out of the room," says Cookson.

But the cost of refurbishing and remodelling Stanley Street outstripped sale prices and with sources of public funding virtually gone, the partnership knows it must bring down costs and raise sale prices. "As we go through the phases of the overall project, we need to bridge the gap between cost and sale prices, so we get to the stage where we can say: 'There's no need for gap funding now because we've upped the market price and we can develop in a more efficient way'," says Julie Whittaker, the council's housing regeneration manager.

Elsewhere in the borough, Whittaker says that the gap between the cost of refurbishment and sale value is about £20,000 per home. "With Stanley Street and the rest of the conservation area, it's about £10,000 more because of the extra conservation costs," she says. "We think we're getting to the stage now where we'll just about break even - excluding the initial purchase price - because the values are starting to increase."

Pendle has also agreed with the HCA that the agency's initial funding can be recycled - in the form of cash from home sales - back into future phases of Whitefield's regeneration. "The money we will get from selling these houses will go back into the wider project and be reused over and over again," says Iftekhar Bokhari, senior regeneration officer at the council. "But it is a case of diminishing returns. We can't do it indefinitely."

With limited public funding available, the council needs Pearl 2 to become as self-financing as possible if it is to complete Whitefield's regeneration. According to Cookson: "For the first time in our working lives, we've got no means of intervening to improve our housing conditions now apart from something like Pearl 2."

1 & 2 Original features such as chimney stacks and wooden sash windows were conserved

3 The quality of finish exceeds that normally expected in a conservation area

4 Thirteen terraced properties were remodelled into seven new homes

The Expert Opinion

James Watson, Consultant director, Colliers International

Q: What do you make of the Pearl 2 partnership?

A: Here's Pendle Borough Council just quietly getting on with a local asset-backed vehicle with a local developer-contractor that has a considerable record in tackling tricky commercial sites in Lancashire mill towns and undertaking private sector housing contracting and development in traditional housing market renewal areas. The local contractor-developer brought something that a mainstream developer would find it difficult to do: it knew the local market. In terms of replicability, most UK markets have smaller, non-national developers in their midst.

Q: What is the most important planning issue that the council faced? And how do you rate its response?

A: The major issue was the refusal to allow the demolition of the properties in 2003. That decision ruled out the compulsory purchase and demolition of these houses, so the council had to tackle this area in a way that prioritised conservation. It went the extra mile to conserve these houses. The quality of the finish exceeds that normally expected in a conservation area. It's a very high-quality scheme. I live in a conservation area and I could put a plastic door or windows on my house without upsetting a planner. In Stanley Street, the joint venture has managed to obtain funding to ensure the conservation of key features such as chimney stacks - which are obviously less necessary in a modern context - nice wooden sash windows and cast iron rain downpipes.

Q: Do you think the project is good value for money?

A: You'll only really know at the very end of the project. Stanley Street will come in at the more expensive end of the spectrum of different interventions they're using in Whitefield, but we don't know exactly how much it costs. All they're saying is that, by the time phase one ends - and Stanley Street is just one part of that phase - they will have refurbished 83 properties across nine terraces at a cost of around £8.5 million, so £102,410 on average. The work is likely to have a catalytic effect on surrounding properties.

Q: How much more of this type of work will Pearl 2 be able to carry out given the current lack of regeneration funding?

A: That's a difficult question. They certainly feel confident that they can roll the sales proceeds from this early phase into the next phase, but the question is the extent to which they'll be able to complete later phases. That's going to be hard. In terms of funding, they've still got fuel left in the tank but they will need to fill up in two or three years. Certainly, housing market renewal could become unfinished business, which could lead to a loss of momentum in these areas. But we must remember that this area was in a deep spiral of decline in 2003 and they've managed to stem the rate of decline and maybe brought stability. The fact that they've sold these four-bed homes for £150,000 says a lot - it's well in excess of what properties in Lancashire mill towns are often thought to be worth. And the fact that people are willing to pay that much shows that the area has a viable future.

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