Public-Private Partnerships: Background Papers for the U.S.-U.K. Conference on Military Installation Assets, Operations, and Services

By Ellen M. Pint; John R. Bondanella et al. | Go to book overview

Appendix F: Privatization of MoD
Married Quarters Housing
The decision to privatize the bulk of the MoD's married quarters housing was made in August 1994.150 NatWest Markets was hired in November 1994 to develop a proposed structure for the sale. It recommended that the housing be sold as one large portfolio to a single purchaser rather than in smaller disposals over time. The reasons given for a single sale were:
1. It would be simpler, quicker, and cheaper to implement.
2. It would be more attractive to some potential purchasers, such as investment banks and overseas investors, because it would diversify the risk that any individual site would be released by the MoD, although some potential purchasers might have difficulty in financing such a large deal.
3. It would avoid the likelihood that the MoD would be left with some relatively undesirable sites that might be difficult to sell.

The sale involved 57,400 housing units in England and Wales.151 Approximately 2,400 of the units were surplus and would be immediately available for sale by the new owners. The remaining units were sold on 999-year leases (one for each of 739 sites), to be leased back to the MoD on 200-year underleases. The initial rent was set at £28 million per quarter (or £111 million per year), with a rolling program of rent reviews at five-year intervals, based on local market rent comparisons. The rent paid by MoD incorporates a discount to reflect MoD's responsibility for maintenance of the housing, as well as other factors.152

To reduce bidders' uncertainty about the rate at which MoD would vacate and release housing for sale, the MoD guaranteed that it would surrender a minimum of approximately 700 units per year for the first 25 years of the underleases, and it also set minimum rental payments for the first 25 years. The minimum rental payments decline steadily from £107 million in the first year to just under £40 million in the 25th year. The maximum number of units that could be released depends on assumptions about the rate of increase in rental

____________________
150
This appendix is based primarily on the U.K. National Audit Office's description of the sale. See National Audit Office, The Sale of the Married Quarters Estate, HC 239 Session 1997–98, August 1997.
151
Married quarters housing in Northern Ireland was excluded for security reasons; housing in Scotland was excluded because Scottish law prohibits residential property leases of more than 20 years, with no right of renewal by the tenant. Approximately 6,300 units in England and Wales were excluded, 1,500 already in the process of being sold or leased to the private sector, 3,000 being used by visiting U.S. forces, and official service residences that could not be physically separated from surrounding nonresidential facilities.
152
The rent paid by MoD reflects a 58 percent discount relative to ordinary market rents, of which 28 percent reflects the MoD's responsibility for maintenance, 20 percent reflects the wholesale nature of the leases and MoD's quality as a tenant (i.e., low probability of default), and 10 percent reflects the benefit of guaranteed payments under the first 25 years of the underleases.

-123-

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Public-Private Partnerships: Background Papers for the U.S.-U.K. Conference on Military Installation Assets, Operations, and Services
Table of contents

Table of contents

  • Title Page *
  • Preface iii
  • Contents v
  • Figures ix
  • Tables xi
  • Summary xiii
  • Abbreviations xxiii
  • 1 - Introduction 1
  • 2 - U.K. Overview 3
  • 3 - Housing 33
  • 4 - Base Operations 51
  • 5 - Logistics 75
  • 6 - Comparisons and Conclusions 103
  • Appendix A - Conference Participants 107
  • Appendix B - Short Definitions of Key U.K. Initiatives and Terms 111
  • Appendix C - Mod Pfi Contracts 115
  • Appendix D - Case Studies of Two Pfi Contracts 117
  • Appendix E - Mod Executive Agencies 121
  • Appendix F - Privatization of Mod Married Quarters Housing 123
  • Appendix G - Mod Initiatives in Construction and Property Management 129
  • Appendix H - Privatization of the Royal Dockyards 133
  • Bibliography 139
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