REVOLVING FUND GENERATES SUCCESSFUL RETURNS AND SOCIAL IMPACT
Venus 217 project highlights how the Chrysalis Fund and a Liverpool City Region Local Authority created a model that was successful for the developer and lenders, as well as for the economy and community.
Steve Rotheram, Metro Mayor of the Liverpool City Region, recently announced that The Chrysalis Fund and its sister fund, the LCR Urban Development Fund have up to £30 million available to spend on stalled or new property schemes in the region.
This money is available because schemes that had previously received loans from the funds, have now successfully completed and the funds have been paid back, allowing a very timely pot of money to become available to property developers and owner-occupiers as they emerge from the pandemic, ready to build back better.
The £35 million Chrysalis Fund launched in 2012 and has supported more than £100 million worth of development activity in the region over the last nine years. One such project is Venus 217 on Knowsley Business Park, which was also co-funded with a significant loan contribution by Knowsley Council.
A 217,000 sq ft BREAM ’Excellent’ Grade A logistics development, Venus 217, was the largest speculative industrial unit of its kind to be built in the Liverpool City Region in 10 years.
The project has proven to be a huge success story for the area, not only for the developer, but also for the local economy. It has brought an estimated 163 new jobs to the area through its sole occupier, Amazon, and allowed for an 11-acre former brownfield site in Knowsley to be completely regenerated.
Due to a profit share provision at the completion of the Venus 217 project, £480,000 has been made available for a new Liverpool City Region Combined Authority fund, that will support community and voluntary groups, building on the work of LCR Cares. Set up by the Combined Authority and administered by the Community Foundation for Merseyside, LCR Cares raised and distributed more than £2.5m to community groups during the pandemic.
The developer had previously partnered with the Chrysalis Fund to fund and develop a 110,000 sq ft industrial unit in 2014, which became a really attractive, saleable investment, and home to Amazon in 2015. It already owned the adjacent site, and due to the success of its first build, decided to build the 217,000 sq ft Venus 217 unit speculatively. This was a significant gamble for the developer and for potential lenders, so traditional lenders weren’t lining up to get involved, but Chrysalis, along with Knowsley Council, saw the financial and economic potential and put a loan funding package together.
The deal was agreed, and the project started on site in late 2018. It progressed well and completed on time and on budget in May 2019. With a BREEAM ‘Excellent’ rating upon completion, it ticked all the boxes, but the market was limited in terms of finding an occupier of this size and scale, and as businesses – especially those which relied on Chinese imports – began to feel the effects of the pandemic, there were concerns. However, the new scheme had a large, secure, tarmacked yard and vast amounts of parking spaces and the adjacent Amazon business required more space as the pandemic and demand for ecommerce gathered pace. Ultimately a license to use the external space of the new 217,000 sq ft unit was agreed between the developer and Amazon, and six months in, the license was extended, before Amazon decided to look at the unit itself. Terms were agreed on Venus 217 by the end of 2020.
Robert Wood, fund manager for the Chrysalis Fund, said:
“There had always been a risk element involved with Venus 217, the developer was fairly small and building speculatively, so we knew the route to repayment could be a difficult one – hence why traditional lenders were not prepared to back the project. We obviously needed the developer to repay the loan in order that we could reinvest into new projects across the City Region. Amazon was already reaping the benefits of being located at Knowsley Business Park and as the business grew, it saw the potential of committing to the larger unit.
“All loans were repaid at the end of March 2021 when the Amazon letting was imminent”, Robert continued. “The interesting aspect to the deal however, was that when it was agreed, in recognition of the risks the lenders were taking, it was agreed that if the developer’s scheme was successful, it would pay the lenders a share of the development profit. This was a successful outcome for all parties, as the developer made a profit, both lenders received a commercial return, as well as a significant profit share, to be recycled back into the fund for other projects. Furthermore, Knowsley Council had a fantastic new building in the borough with a highly successful operator, which brought more jobs to the area, new rates revenue, as well as an additional profit share which could then be ploughed into other services for taxpayers. It was a “win / win” all ‘round.”
Raphael Miller, Head of Investment at the Liverpool City Region Combined Authority, said:
“Venus 217 is a perfect example of why we are investing commercially through these funds. The profit share was split between the lenders and, as a Combined Authority, we were also able to use the money to create a fund to support voluntary and community sector organisations.”
The funds are actively inviting new development projects that meet their investment criteria and can contribute to their economic development goals, including the creation of jobs, employment floor space and land remediation.
The Chrysalis Fund is managed by igloo Investment Management Ltd, with support from Avison Young.
Chrysalis is supported by the 2007-2013 European Regional Development Fund for the North West, under the Joint European Support for Sustainable Investment in City Areas (“JESSICA”) programme.
The LCR Urban Development Fund is backed by the 2014-2020 ERDF England Operational Programme and it is a new funding route to foster smart, sustainable and inclusive growth for our Liverpool City Region.
For more on the LCR Urban Development Fund, click HERE.
For more on the Chrysalis Fund click HERE.