“Financial alchemy” or a zero sum game? Real estate finance, securitisation and the UK property market

Following the US model, the UK has seen considerable innovation in the funding, finance and procurement of real estate in the last decade. In the growing CMBS market asset backed securitisations have included $2.25billion secured on the Broadgate office development and issues secured on Canary Wharf and the Trafford Centre regional mall. Major occupiers (retailer Sainsbury’s, retail bank Abbey National) have engaged in innovative sale & leaseback and outsourcing schemes. Strong claims are made concerning the benefits of such schemes – e.g. British Land were reported to have reduced their weighted cost of debt by 150bp as a result of the Broadgate issue. The paper reports preliminary findings from a project funded by the Corporation of London and the RICS Research Foundation examining a number of innovative schemes to identify, within a formal finance framework, sources of added value and hidden costs. The analysis indicates that many of the gains claimed conceal costs – in terms of market value of debt or flexibility of management – while others result from unusual firm or market conditions (for example utilising the UK long lease and the unusual shape of the yield curve). Nonetheless, there are real gains resulting from the innovations, reflecting arbitrage and institutional constraints in the direct (private) real estate market

Weighing up the ODDs: options, development and diversification

The growing trend of development and diversification in the British countryside stems from three main causes: the decline in farm incomes, the growing influx of non-agricultural commerce into rural areas and a change in planning policies. Even before the foot and mouth disaster, farm incomes have been in decline over the last five years, falling by as much as 90% overall in that period according to the figures issued by the Ministry of Agriculture, Fisheries and Food (MAFF). Farmers have responded to this situation in many ways, but notably through diversification. This paper examines some of the options available.

Contributing understanding of mitigation options for phosphorus and sediment to a review of the efficacy of contemporary agricultural stewardship measures

Experiences from the Mitigation Options for Phosphorus and Sediment (MOPS) projects, which aim to determine the effectiveness of measures to reduce pollutant loading from agricultural land to surface waters, have been used to contribute to the findings of a recent paper (Kay et al., 2009, Agricultural Systems, 99, 67–75), which reviewed the efficacy of contemporary agricultural stewardship measures for ameliorating the water pollution problems of key concern to the UK water industry. MOPS1 is a recently completed 3-year research project on three different soil types in the UK, which focused on mitigation options for winter cereals. MOPS1 demonstrated that tramlines can be the major pathway for sediment and nutrient transfer from arable hillslopes, and that although minimum tillage, crop residue incorporation, contour cultivation, and beetle banks also have potential to be cost-effective mitigation options, tramline management is the one of the most promising treatments for mitigating diffuse pollution losses, as it was able to reduce sediment and nutrient losses by 72–99% in four out of five site years trialled. Using information from the MOPS projects, this paper builds on the findings of Kay et al. to provide an updated picture of the evidence available and the immediate needs for research in this area.

Real options and game theoretical approaches to real estate development projects: multiple equilibria and the implications of different tie-breaking rules

This paper contributes to a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the in formation set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.

The cost of choice: how corporate real estate managers evaluate business space options

Firms are faced with a wider set of choices when they identify a need for new office space. They can build or purchase accommodation, lease space for long or short periods with or without the inclusion of services, or they can use “instant office” solutions provided by serviced office operators. But how do they evaluate these alternatives and are they able to make rational choices? The research found that the shortening of business horizons lead to the desire for more office space on short-term contracts often with the inclusion of at least some facilities management and business support services. The need for greater flexibility, particularly in financial terms, was highlighted as an important criteria when selecting new office accommodation. The current office portfolios held were perceived not to meet these requirements. However, there was often a lack of good quality data available within occupiers which could be used to help them analyse the range of choices in the market. Additionally, there were other organisational constraints to making decisions about inclusive real estate products. These included fragmentation of decisions-making, internal politics and the lack of assessment of business risk alongside real estate risk. Overall therefore, corporate occupiers themselves act as an interial force to the development of new and innovative real estate products.

The Finance Act 1998: can the owners of agricultural land continue to gain from their capital disposals?

This paper seeks to analyse and discuss, from the perspective of the owners of agricultural land, the main changes to the Capital Gains Tax regime introduced in the Budget of March 1998 and contained in the Finance Act 1998. The immediate replacement of indexation with a new Taper relief is examined, along with the phasing out of Retirement relief, and the interaction of Taper relief with Rollover relief.

Modelling of Johne's disease control options in beef cattle: a decision support approach

Johne's disease in cattle is a contagious wasting disease caused by Mycobacterium avium subspecies paratuberculosis (MAP). Johne's infection is characterised by a long subclinical phase and can therefore go undetected for long periods of time during which substantial production losses can occur. The protracted nature of Johne's infection therefore presents a challenge for both veterinarians and farmers when discussing control options due to a paucity of information and limited test performance when screening for the disease. The objectives were to model Johne's control decisions in suckler beef cattle using a decision support approach, thus implying equal focus on ‘end user’ (veterinarian) participation whilst still focusing on the technical disease modelling aspects during the decision support model development. The model shows how Johne's disease is likely to affect a herd over time both in terms of physical and financial impacts. In addition, the model simulates the effect on production from two different Johne's control strategies; herd management measures and test and cull measures. The article also provides and discusses results from a sensitivity analysis to assess the effects on production from improving the currently available test performance. Output from running the model shows that a combination of management improvements to reduce routes of infection and testing and culling to remove infected and infectious animals is likely to be the least-cost control strategy.

Determining the cost of in-field mitigation options to reduce sediment and phosphorus loss

The Mitigation Options for Phosphorus and Sediment (MOPS) project investigated the effectiveness of within-field control measures (tramline management, straw residue management, type of cultivation and direction, and vegetative buffers) in terms of mitigating sediment and phosphorus loss from winter-sown combinable cereal crops using three case study sites. To determine the cost of the approaches, simple financial spreadsheet models were constructed at both farm and regional levels. Taking into account crop areas, crop rotation margins per hectare were calculated to reflect the costs of crop establishment, fertiliser and agro-chemical applications, harvesting, and the associated labour and machinery costs. Variable and operating costs associated with each mitigation option were then incorporated to demonstrate the impact on the relevant crop enterprise and crop rotation margins. These costs were then compared to runoff, sediment and phosphorus loss data obtained from monitoring hillslope-length scale field plots. Each of the mitigation options explored in this study had potential for reducing sediment and phosphorus losses from arable land under cereal crops. Sediment losses were reduced from between 9 kg ha−1 to as much as 4780 kg ha−1 with a corresponding reduction in phosphorus loss from 0.03 kg ha−1 to 2.89 kg ha−1. In percentage terms reductions of phosphorus were between 9% and 99%. Impacts on crop rotation margins also varied. Minimum tillage resulted in cost savings (up to £50 ha−1) whilst other options showed increased costs (up to £19 ha−1 for straw residue incorporation). Overall, the results indicate that each of the options has potential for on-farm implementation. However, tramline management appeared to have the greatest potential for reducing runoff, sediment, and phosphorus losses from arable land (between 69% and 99%) and is likely to be considered cost-effective with only a small additional cost of £2–4 ha−1, although further work is needed to evaluate alternative tramline management methods. Tramline management is also the only option not incorporated within current policy mechanisms associated with reducing soil erosion and phosphorus loss and in light of its potential is an approach that should be encouraged once further evidence is available.

Tax principles, product differentiation and the nature of competition

We analyze the choice between the origin and destination principles of taxation when there is product differentiation and Bertrand competition. If taxes are redistributed to consumers and demand is linear the origin principle dominates the destination principle whatever the degree of product differentiation and extent of economic integration. With nonlinear demand the origin principle dominates if there is sufficient economic integration. When the social value assigned to tax revenue is higher than the private value, the destination principle dominates for intermediate values of product differentiation and economic integration. The same results are also shown to hold with Cournot competition.