The Olympics are a distant memory. But their legacy could be not just improved community facilities for east London, but wider lessons for local authorities about how to lead from the front on regeneration
March 22 is a milestone date. For Hammers fans, it is the day their beloved West Ham signed to move to the Olympic Stadium. For others, its significance is that a major step has been taken to achieve a key legacy of the Olympic Games: the provision of a world-class, multi-use facility for football, athletics, other sports and entertainment and, more importantly, the local community.
For the London Borough of Newham, it marks the success of its three-year campaign to ensure that the Stadium is used for the social, economic and physical regeneration of east London.
At first sight, an iconic sporting arena might appear to be an odd role model for others embarking on regeneration, especially those outside east London. However, there are financial and legal lessons to be learned from the innovative approach Newham and its partners took.
As with many regeneration dilemmas, this one also started with a lack of public funding options. The original plan for the Stadium was to convert it into a limited athletics-only venue. But it became apparent that the economics of athletics meant such a solution was not viable without long-term public funding. Both the previous and present governments explored the option of a multi-use venue that would be economically self-sufficient while delivering a legacy outcome. This is the solution achieved today.
The first element of this solution is that the public sector will lead on the conversion and operation of the Stadium. This is innovative, not so much because it is public sector-led but because the public sector parties are investing funds into the project. The return on that investment will come from income provided by the commercial occupants of the Stadium, including West Ham Football Club, concert promoters and others. This income will also be used to ensure genuine community access and use of the Stadium.
The second element is that the public sector is treating the Stadium conversion as a commercial venture – albeit one whose heart is based on achieving the Olympic legacy. So this means applying a hard-nosed business analysis of how this investment can both secure repayment of loans and support on an ongoing basis the general public's access and ability to use these world-class facilities.
The lesson for other regeneration projects is that regardless of how much public sector involvement is required, ultimately that regeneration will not work unless there is a viable commercial return that will support vibrant retail office and private home use. The public sector should also secure an appropriate return for its investment in regeneration, if only to ensure it has revolving funds to support others’ initiatives.
This principle has been largely adopted by the Department for Communities & Local Government and the Homes & Communities Agency on initiatives such as the Growing Places Fund. This approach, although admittedly a necessity in the current climate, also ensures that an important discipline is retained – the need for the public sector to be ‘businesslike’. That means investing if the business case works, rather than only in projects that show an instant return. Structures such as asset-backed vehicles and joint ventures can be designed to ensure that regeneration and a public sector return are achieved over time rather than immediately.
The third element that may be useful to local authorities is the position Newham took in the project. In its view, the legacy for the local community was vulnerable to being squeezed in the current climate. Like all councils, the borough’s revenue funding is under severe pressure. However, it was able to use borrowing powers to invest £40m into the project. To ensure a return that would enable it to repay that loan, the council had to adopt a particularly ‘hard-headed’ business approach to the project's commercial viability. Councils that opt to use Tax Increment Financing 1 for investment in local infrastructure would be well advised to do the same. They will need to ensure that their investment will generate sufficient additional business rates to repay any loans.
The fourth interesting element of the project is that the public sector fully recognises the value of private sector partners in the venture. Construction works and the operator of the Stadium will be procured, West Ham Football Club was selected after competition and there will also be further competitions for concert promoters and naming rights. Most of the commercial elements of the Stadium will be subcontracted to specialist private sector entities whose business it is to deliver. The innovation for this project is that the public sector will retain ownership and investment risk and transfer the responsibility for delivery to the private sector.
As Newham is relying on its power of general competence for a commercial purpose, it is restricted by the Localism Act 2011 to participating in any structure through a limited company. To ensure it could participate in a joint venture with the London Legacy Development Corporation, it created Newham Legacy Investment Limited. The LLDC and NLI are partners in E20 Stadium LLP, the corporate joint venture entity that is responsible for converting and operating the stadium. E20 Stadium LLP will procure conversion works and seek a commercial operator to run the Stadium. UK Athletics and West Ham will, with other organisations and the local community, have use of the Stadium on a long-term basis.
Paul McDermott is a partner at Trowers & Hamlins law firm
