A business leader says a Liverpool crackdown on using fractional sales to fund property schemes could harm the local development market. Tony McDonough reports
A crackdown on so-called fractional sales to fund property developments in Liverpool cold pose a threat to new investment, a businesses leader is warning.
Frank McKenna, chief executive of business lobby group, Downtown in Business (DIB), is calling for a “nuanced” approach from the city you council in its approach to fractional sales being used to fund new schemes.
Also known as off-plan sales, the model see developers raise liquidity from a number of smaller investors to provide cash to fund new projects. A number of failed schemes in Liverpool has led the city council to announce a crackdown.
Last week, city council chief executive Tony Reeves said the council would no longer sell land or property to any developer that cannot prove it has the funds in place to complete a scheme.
However, Mr McKenna says there is a fear in the property sector that the council wishes to call a halt on all developments using the fractional sales model. One Liverpool developer, Legacie, has successfully used the method to fund a number of residential schemes in the city.
In partnership with RWInvest, Legacie has raised more than £300m from overseas investors. Developments delivered, or under construction, include the £11m Ropemaker Place scheme in Renshaw Street, completed in 2019, and Parliament Square, a £90m project which will see 500 apartments across five blocks in the Baltic Triangle.
In 2019, Legacie founder John Morley told LBN: “Fractional-investment sales have helped our property portfolio to expand rapidly, which has resulted in Legacie building the first-class accommodation Liverpool needs and deserves.”
Mr McKenna says the off-plan model is used around the world, “from Lisbon to Los Angeles”, to deliver property schemes. He added: “You’ll find reputable developers utilising it as a way to regenerate their city and provide new homes. Thousands of homes have been successfully delivered in Liverpool in exactly the same way.”
He believes that the lack of regulation and oversight of the model in the UK has resulted in some schemes failing, causing reputational harm to Liverpool as a result. But Mr McKenna now fears that this has been allowed to ‘colour the judgement’ of the model’s wider merits and success.
He explained: “If the council wishes to regulate the model, then surely a better way would be to instigate a financial due diligence procedure and make this part of the planning process. It would allow the council to identify those in whose hands off-plan sales will be safe and would be revolutionary in the UK, as well as being a practical way to root out the bad apples.
“It would require some legal input to ensure legitimacy but I think it could be achievable and is a much better option than just stating ‘off-plan sales will not be tolerated’.”
Mr McKenna believes that institutional interest in Liverpool remains subdued and off-plan funding have kept the market alive. He said: “Viability in Liverpool remains a challenge and the developers who have steered a way through this have typically been those with a deep local market understanding and trusted local supply chain.
“If the council believes that institutional funders and their development partners will plug the gap if these developers leave the stage then I think they are mistaken. At what point during the last 25 years of sustained regeneration was that ever the case?
“The city’s regeneration has largely come from within, or with the help or large slugs of public subsidy, such as via the Objective One programme. Whilst there are some excellent examples of institutionally-funded projects, such as the Cargo Building and Baltic Yard, these are the exception, not the rule.
“The market is becoming more challenging with cost inflation skewing viability assessment and contractors going bust with depressing regularity. Now is not the time to be shutting off a viable funding stream nor demanding unachievable affordable housing numbers.”