Erimus enters £5.6m building venture

Erimus Housing has set up a £5.6 million company with Middlesbrough Council to free up cash to invest in the regeneration of the 550-home Grove Hill estate. It aims to attract £60 million of investment from a private developer in the next couple of years. The estate was left without millions of pounds of funding when a private sector developer pulled out in 2010 saying its plans to build around 400 homes were no longer financially viable.

Under the plan, 10,500-home Erimus is paying the council £2.8 million to buy its way out of payment obligations remaining from its stock transfer, and is then investing a further £2.8 million into the new joint venture vehicle to which the council will supply land. The £5.6 million will be used to regenerate the estate which has struggled to secure private investment following the economic downturn.

Erimus plans to build 120 homes for social rent, finish demolishing the remaining homes and improve the infrastructure of the site, before offering it to a private developer. It is hoped the improvement to the site will make it lower risk for developers.

Because the association was created from a 2004 stock transfer from the council, there are historic financial agreements. These include a guaranteed £5,000 for the council from each property Erimus sells under right to buy up to a cap of £4.5 million. It can also recover VAT on decent homes work until 2013/14 thanks to a VAT ‘shelter’ deal valued at around £600,000. The council also receives 50 per cent of the value of any land on the estate sold by Erimus in perpetuity.

The housing association factored in the cost of buying itself out of these obligations in its business plan.

Chris Smith, managing director of Erimus Housing, said: ‘The first priority would be Grove Hill, but we want to set up a mechanism where we can use that vehicle in the future and put joint assets in.

‘The first site of 30 properties is starting in March.’

Kevin Parkes, executive director for regeneration at Middlesbrough Council, said there was potential to make money from the scheme in the future: ‘We’re using the joint venture to release some cash up front. We would share any profit [from homes sold] with Erimus and that money would be recycled back into the fund.

‘We’re not really looking at this in terms of a mechanism to make substantial resources at the moment, but it might happen in the future.’

Janet Winrow, partner at law firm Trowers & Hamlins, said: ‘[A deal like this] is not very common because most stock transfer associations have a specific business plan which doesn’t necessarily accommodate paying out such a big sum. I’m sure a number of organisations would be keen to be free of similar contracts so they will watch this with interest.’