Agenda item

Report of Director of Regeneration and Planning.

Lead cabinet member:  Councillor Troy Tester.

(See item 20 below for exempt addendum)

(1) Proposed property and acquisition strategy (PAIS) adopted for inclusion in council’s asset management plan.

(2) Up to £30,000,000 within the council’s capital programme set aside for acquisition of land and property that meets objectives of PAIS.

(3) Up to £100,000 from economic regeneration reserve set aside to undertake due diligence work (to include surveys, legal, and other professional fees) relating to property acquisition, in event that the expenditure cannot be capitalised.

(4) Director of regeneration and planning, in consultation with lead cabinet member for corporate and strategic services, strategic property board and council’s S 151 officer, given delegated authority to negotiate and finalise land and property acquisitions.

60.1 Cabinet considered the report of the director regeneration and planning proposing a property acquisition and investment strategy (PAIS) for adoption by the council.  In line with the council’s commitment to achieve a sustainable asset base, it was continually reviewing its portfolio to maximise the yield from its assets as well as exploring investment opportunities to secure future revenue opportunities for the council.  The council’s medium term financial strategy target for new income generation by 2020 is £1m.  Management of the council’s property assets would go part-way to meeting that target, but it was clear that a step-change was needed by way of property acquisitions to generate new revenue opportunities.

60.2 At a time when interest rates were at an historic low, borrowing for investment would appear to be prudent, as long as the investment was profitable; fitted within the framework of the council’s social and corporate goals; was subject to proper risk management; and the investment strategy was balanced by prudence and transparency.  To reduce any risks the PAIS would incorporate a number of principles:-

·         That the yield from the investment should achieve a return to the council at a specific % above the cost of capital borrowing, and after servicing the purchase costs, to be agreed on a case by case basis by the council’s section 151 officer.

·         Due diligence checks are to be carried out on each acquisition to include the analysis of:

(a) The minimum length of the unexpired lease terms.

(b) Tenant covenant strength and credit checks.

(c) Asset maintenance liability and building condition.

(d) Legal encumbrances, including 3rd party rights and covenants.

(e) Planning and/or regeneration potential.

·         That investment risk is spread over a range of property assets to include:

(a) Retail – risks to be mitigated by selecting schemes in the right locations.

(b) Commercial, with opportunities for conversion, or part-conversion to residential.

(c) Industrial – risks to be mitigated by selecting schemes in good locations and where future capital investment costs are identified.

·         The asset base is to be balanced with the overall aim to achieve 70% of assets held as a long-term investment and 30% trading for profit.

60.3 The council had been presented with a number of potential acquisitions. Some of these opportunities were on the open market, but others might be secured by private negotiation.  An addendum to this report had been circulated in the confidential part of the agenda setting out the current opportunities.  The opportunities were not inter-dependent and might not all come to fruition.  Should all of the opportunities be worth pursuing, the effect on successful completion could mean a net positive variation to the revenue budget of up to £2m per annum commencing 2017/2018.  A decision to proceed with any of these potential acquisitions would only be made by the director in accordance with the delegation set out in resolution (4) below and subject to compliance with the PAIS and completion of due diligence checks.

60.4 To provide surety over long term finance costs, at the detailed due diligence stage, the council would explore other options for borrowing in line with the treasury management strategy to include new forms of institutional funding.  It was unlikely that these would be required, but would however provide important background to the councils’ mid to long term capital financing requirements and ensure the council had a clear benchmark in making treasury management related decisions.  The Council could utilise capital receipts of prudential borrowing to finance its capital programme and therefore investments had to be affordable and risk managed.  Any borrowing required would be managed within the council’s treasury management strategy approved by council annually. 

60.5 Resolved (key decision): (1) That the proposed property acquisition and investment strategy (PAIS) be adopted for inclusion in the Council’s asset management plan.

(2) That up to £30,000,000 within the Council’s capital programme be set aside for the acquisition of land and property that meets the objectives of the PAIS.

(3) That up to £100,000 from the economic regeneration reserve be set aside to undertake due diligence work (to include surveys, legal, and other professional fees) relating to property acquisition, in the event that the expenditure cannot be capitalised.

(4) That the director of regeneration and planning, in consultation with the lead cabinet member for corporate and strategic services, the strategic property board and the council’s section 151 officer, be given delegated authority to negotiate and finalise land and property acquisitions.

Notes: (1) The confidential addendum to this report remains confidential.

(2) Exempt information reasons: 3 - information relating to the financial or business affairs of any particular person (including the authority holding that information) and 5 (information in respect of which a claim to legal professional privilege could be maintained in legal proceedings).