Drivers, risks and barriers to corporate PFI For many corporate organisations, property ownership can tie up large amounts of capital and energy that could be employed more productively elsewhere. Competitive pressures, accounting changes and increasingly sophisticated occupier requirements are therefore building demand for new and innovative ways to satisfy occupation needs. The investment climate is also changing. Falling interest rates and falling inflation can be expected to undermine returns from the traditional FRI lease.
In future, investment returns will be more dependent on active and innovative management geared to the needs of occupiers on whom income depends. Occupier and investor interests therefore look set to coincide, but unlocking the potential for both parties will depend on developing new finance and investment vehicles that align their respective needs.
In the UK examples of such vehicles include PFI in the public sector and off-balance sheet financing in the private sector, such as sale and leaseback, sale and repurchase, options and joint ventures. In the USA 'synthetic lease' structures have also become popular.
Growing investment market experience in assessing the risk and return of such transactions suggests scope for further innovative arrangements in the corporate sector. But how can such arrangements be structured? What are the risks and rewards? These were the questions addressed in research by the College of Estate Management, sponsored by the Jones Lang LaSalle Education Trust. A full report will be published in Spring 2000.
The conference paper will focus on the drivers, barriers and risks associated with creating new occupation and finance structures for corporate property, and particularly the prospect for corporate PFI. Findings will be presented from a series of interviews with corporate occupiers, financiers and accommodation providers, based around a model illustrating the different directions corporates are taking to satisfy occupation needs. Key themes will be placed within the context of relevant literature and latest developments, particularly in the sphere of corporate PFI and property securitisation.
