In his monthly report to the people of Hastings council leader Peter Chowney has hailed the policy of buying up commercial property a ‘success’ on many levels.
Having borrowed close to £50m in the last four years there has been growing interest in Hastings Borough Council’s (HBC) property owning ambitions with many local people unhappy about HBC taking on so much long term debt.
HBC is just one of many councils up and down the country that have started to buy up commercial property using funding from the Public Works Loans Board but warning bells have been sounded that councils are making these sizeable investments without taking advice from the right sources and Housing and Communities Secretary James Brokenshire has said he plans talk to the Treasury about whether “…interventions might be required” with regard to council investments and in January, senior civil servant Dr Jo Farrar admitted the government was worried that local authorities had borrowed too much to invest in commercial property.
However Mr Chowney is confident that what HBC is doing is the right way forward.
“Three years ago HBC began a programme of commercial property purchases to offset the huge cuts in government grants to the council.
“The formula for this is simple. Councils can borrow money cheaply from the Public Works Loans Board, we use this to buy freehold properties with a full repairing lease, which means the tenants are responsible for all the repairs, the rent is used to pay off the loan, leaving a surplus that can be used to fund council services.
“The percentage net return on the investment is usually between two to five per cent after loan repayments are included. After the loans are paid off – usually over 40 years – the council retains all the rents as income, meaning the net return on the property gets much higher, and the council has gained a valuable capital asset.”
When he spoke to Hastings In Focus back in January Mr Chowney pointed to the fact that HBC has a strong track record in earning money from property and he goes in to greater detail in his report: “Forty years ago the council decided to borrow money to build factory units by creating Ponswood, Castleham and Churchfields industrial estates. Now those loans are paid off, and the council gets several million pounds a year net income from those investments, as well as owning the land and buildings.”
Mr Chowney says the programme over the last three has been very successful. All properties bought so far have been within Hastings borough but Mr Chowney explains that HBC is looking outside the borough too.
The additional net return on these investments, after loan repayments and charges, is now well over £1million a year – without this income, cuts to council services would have to be much deeper.
- Property purchases have included:
- Muriel Matters House (the council offices)
- Sedlescombe Road Retail Park (Pets at Home and Dunelm)
- Builder Centre (next door to the above)
- Bexhill Road Retail Park (TK Maxx)
- Bexhill Road Aldi (the former Peugeot garage currently under development, with a deal for the council to take possession when it’s finished)
- Heron House (the DWP offices on London Road)
- Lacuna Place (offices in Havelock Road, including Tesco’s)
Mr Chowney explains that the council has developed a scoring system to assess whether it should go ahead with a property purchase and all the properties were only bought after a lot of ‘due diligence’ work, including full surveys was carried out and in each case he says that HBC sought external expert advice on value for money.
“Quite a few other properties have been offered to the council, but have been rejected because they didn’t get through the due diligence process, didn’t represent good value, or had structural or legal problems,” says Mr Chowney.
He then goes on to explain that the policy isn’t just about generating income: “It’s also about regeneration and protecting jobs,” he says. “Many of these properties were owned by offshore companies or absentee multinational corporations who failed to maintain communal areas and failed to enforce repairing obligations in the leases. Lessees often found them difficult to contact, and didn’t even know when the freehold had been sold on.
“Having the borough council as the freeholder ensures that both freeholder and leaseholder obligations will be met and that leaseholders have a local, secure landlord they can easily contact and work with. So the programme has been a success, on several different levels: income for the council, securing jobs, and better maintained retail premises,” Mr Chowney explains and goes on to say that HBC will be looking to extend the programme, wherever it can find the right properties.
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