ULI’s Montgomery urges city to be cautious over TIFs

THE head of an international real estate organisation has urged businesses and the public sector to grasp the opportunity of Birmingham’s proposed Enterprise Zone – but has also sounded a note of caution over tax increment finance.

Joe Montgomery, recently appointed as the European head of international real estate research and education body the Urban Land Institute, was visiting the city to meet business leaders and learn about the city’s regeneration programme.

Mr Montgomery, a graduate of Aston University, and formerly the director general of regions and communities at the Department for Communities and Local Government, told TheBusinessDesk.com that Birmingham was well placed to achieve its ambition to be a significant global city.

He said: “Birmingham has tremendous assets in its universities and cultural facilities and the council owns considerable real estate assets and has a reputation as a well-run authority.

“I’ve always thought Birmingham could be more assertive about how it positions itself – it is an international city but it needs to genuinely become a global city.

“It’’s got many of the assets on which to build and no lack of ambition amongst its politicians and business leadership; you just need to turn that into the sort of LEP that can realise those ambitions.”

He saluted the city’s ambitious plans to create a city centre Enterprise Zone, whose incentives would create a surge in demand from business, leading to future increases in revenues for the city, against which it could borrow now to fund major projects across the LEP area.

But he also sounded a warning.

He said: “I’m a supporter of the drive to tax increment finance (TIF). But cities entering into further indebtedness through bond issues need to exercise some care. There are several cities across the world struggling to maintain their bond cover.

“The TIF model per se is fine, but issuing bonds on the back of projected revenues needs really careful study. Prudential borrowing may be more cost effective, and even a city the size of Birmingham needs to be very cautious about entering into debt when most are trying to de-risk.

“But the city is very well placed in that it has substantial land and buildings in its ownership, and is releasing more land through the reduction in its own workforce. The question is whether that land is best sold in today’s market when you might not get the best prices or whether you could use the land and buildings as an equity stake in developments against which you take a deferred share of any uplift.

“There are various ways to stimulate development and issuing debt is not solely and automatically the only thing you can do. The city needs to do some judicious selection of the appropriate development model for particular sites.”

Mr Montgomery said the ULI’s global reach and the extensive expertise of its members could be a major asset for Birmingham, particularly given the LEP’s flagship city centre Enterprise Zone proposal.

He said: “If urban development is the priority for the LEP in this region, then ULI could be a huge asset in identifying partners or even itself in helping to solve particular problems. We have run Urban Advisory Panels in New Orleans , Barcelona, Utrecht, Luxembourg and recently in Chester.

“We bring together global expertise to focus on a problem defined by a city and produce an expert report that’s independent and commercially intelligent. We would love to be commissioned to study one of the urban development challenges in Birmingham.”