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Gary

Council buy Eddie Stobart HQ

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Well. Firstly, from a purely financial point of view, they need to be getting all of this right. If anybody isn't concerned, they should be. It has the potential to become a massive problem. 

Secondly, the council's growing role as a developer is in direct conflict with its role as a planning authority. Councillors should be raising some  serious questions about what this means for local democracy. 

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Local councils ramp up exposure to commercial property

Britain’s indebted councils have been spending billions of pounds on commercial property, raising fears that local authorities have ramped up their exposure to the troubled UK high street just as specialist investors look to exit.

Councils invested £4bn in land and buildings in the financial year to March 2018, an increase of 43 per cent from a year earlier, according to data from the Ministry of Housing, Communities and Local Government. Officials believe £1.8bn of last year’s total was for investment purposes, a sixfold increase from 2014.

Local councils’ budgets have been squeezed by years of austerity, leaving them in search of new sources of income. Some have used record-low interest rates to borrow money to invest in property, including commercial assets ranging from office blocks and industrial buildings, to shopping centres and retail parks.

Councils are not meant to borrow to speculate: the government said in 2009 it was “unlawful to borrow with the sole purpose of investing at a profit and without any spending objective”. However, the 2003 Local Government Act does allow councils to “borrow in advance of need”.

The latest data also show that borrowing by councils shot up to £10bn in 2017-18 from £4.4bn four years earlier.

The biggest spenders on commercial property were Spelthorne Borough Council — which invested mainly in offices — with £270m, Warrington Borough Council at £220m and Eastleigh Borough Council at £194m.

Data from the property agents Carter Jonas show councils invested £2.3bn in office buildings between 2013 and 2017, along with £1.5bn in retail property.

The figures suggest local authorities are putting an increasing amount of money into shopping centres and retail parks, just as experts warn of a structural decline in the sector as consumers increasingly move online. Though many are buying properties within their own borders as part of regeneration plans, the investments leave them vulnerable to market downturns.

Landlords are struggling to sell billions of pounds of UK retail property, as they seek to reduce their reliance on a sector plagued by high-profile collapses. More than 2,100 stores and almost 40,000 employees have been affected by retail failures this year, according to the Centre for Retail Research.


“Local authorities are trying to square an impossible circle and raise the funds they need to provide services which the government isn’t funding them properly for,” said Steven Norris, a former minister and chairman of Soho Estates.

He said councils risked a repeat of the 1970s and 80s, when Hammersmith and Fulham council entered into billions of pounds’ worth of interest rate swap deals, threatening large losses until the derivatives were ruled invalid by the courts.

Joel Benjamin, who is investigating financial activity at local authorities for Research for Action, said councils were taking “leveraged . . . bets underwritten by taxpayers”. He drew parallels with the financial crisis, when 127 councils had almost £1bn on deposit with failed Icelandic banks. Many authorities had borrowed that money, seeking to take advantage of favourable interest rates.

“Our town councils remain financialised, unregulated, and financially reliant upon gambling activity, the risks of which, history suggests, they are entirely incapable of managing,” Mr Benjamin said.

The government issued new guidance earlier this year forcing councils to explain how asset purchases relate to their core purposes, which could make it harder for them to buy properties beyond their own boundaries, some experts say.

However, Tony Travers, visiting professor at the department of government at the London School of Economics, said the investment trend was likely to continue given the continued pressure on local authorities’ budgets.

“They will continue looking for any revenue they can to try to prop up their much-reduced resources, and I suspect there will be more [property] investment unless the government decides it wants to cap it off more than it has already.”
 

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51 minutes ago, asperity said:

Thanks Grey Man. Sounds risky to say the least.

Time will tell obviously. 

I am not reassured by the council's headlong rush into so many of these investments nor their bullish attitude. I'm amazed for example that Lynton Green hasn't been snapped up by the Treasury or a major blue chip given the confidence he displays on social media about his exceptional business acumen. This extends to Redwood Bank, which seems an ill-advised thing to be crowing about just now.  

I haven't posted the comments underneath the FT story, many of them from people within the property and investment sectors, but they are even more pessimistic than the tone of this story. WBC has, of course, now invested far more than the sum quoted in the story which was essentially Birchwood Park. I do wonder who is advising them and also worry about their very close associations with developers like Langtree and Peel. 

If I had to bet, I'd say at least one or two of these deals will go tits up in spectacular fashion. If that does happen, I imagine the fingers will point at somebody no longer with the council - my guess will be Steven Broomhead who probably will be retired by then. Younger people like Russ Bowden and Lynton Green might have to face some music if it completely goes awry and the town ends up bankrupt. That is also a possibility. 

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