Agenda item

Annual Property Investment Update


On 18 December 2017 (Minute C17/46 refers), Council approved the creation of a Property Investment Strategy with a £7m initial budget as part of the capital programme and the establishment of the Property Investment Panel (PIP) who would oversee and authorise the various investment opportunities.


On 26 February 2018 (Minute C17/65 refers), Council approved the capital programme up to 2022/23, which included a revised budget of £35m to enable economic regeneration through property investment which was to be funded through borrowing.


Property investments that had been considered as part of the Strategy fell into two main categories; investments in existing properties and development opportunities.  Investments in existing properties provided an immediate financial return for the authority and were likely to consist of built commercial space with an existing rent-paying tenant.  Development opportunities were sites or land that were acquired for the purposes of development/redevelopment and achieving a longer-term income.         


Once opportunities were identified, they were recorded by officers and were then subject to a seven stage acquisition process outlined in Appendix 1 to the report. Progress through the various stages was then monitored and recorded onto a spreadsheet at confidential Appendix 2 to the report.


Following an initial screening, a high level financial appraisal of the site was undertaken and where necessary a site visit conducted.  Officers had screened 39 properties since the beginning of the programme and 16 since the last report to the Committee in March 2019. Identified properties were then progressed for discussion by the Property Investment Group (PIG), consisting of the Executive Director, Assistant Director Resources, Head of Service Acquisitions Transformation and Regeneration, Property Investment Manager and other property and finance officers as necessary.  The Group met weekly to consider the potential return on investment, economic benefit to the district, evaluate the risk and set parameters for negotiation. 


Following agreement on the purchase price and heads of terms, a report was written for consideration by the PIP which provided a detailed site description, rationale for acquisition, details on any existing tenants, details on the valuation agreed, provisional reports on title, the return on investment appraisal and associated financial, legal, environmental and planning risks.  Following approval of the PIP, officers and Legal undertook the necessary due diligence required for exchange and completion.


The current Property Investment Strategy (PIS) was adopted by the Council in May 2018 and was attached at Appendix 3 to the report.  The objective of the PIS was to support and safeguard the economy of the Rother area through the long-term protection of existing and the creation of new employment space, through investment in land and property in the Rother economic area.  A review of the PIS was to be presented to Cabinet on 8 June 2020, with a request to approve an increase in the number of Members appointed to the PIP from five to six, (three Executive and three non-Executive Members) to allow more flexibility when convening meetings of the PIP at very short notice.


Members were advised that, since the previous report in March 2019, the Council has acquired a further three properties with a total value of £11.125m.  The total value of the properties purchased by the Council as part of the PIS was £13.625m, with a further £10m approved from borrowing to implement development at Barnhorn Green.  Members noted, as detailed in confidential Appendix 2, that there were a number of properties currently under consideration, negotiation, or undergoing the due diligence process.


The Council’s internal auditors had recently reviewed the Council’s processes for acquiring properties and identified no serious risks.  However, some recommendations were made to assist the process in future, which officers had taken on board and these were being actioned.


An increase of 1% placed on the Public Works Loan Board rate by the Treasury in the autumn of 2019 had narrowed the viability margin for investment acquisitions, resulting in the Council rendered less effective when competing in the marketplace.  In general, the UK investment market had been slow in recent years, meaning that there was keen competition for good quality investments.  The Council had direct experience when bidding for local investments where the eventual sale price had been significantly in excess of a level that would be affordable to the Council.


It was unlikely that the Council would meet the Medium Term Financial Plan income targets through property acquisitions under the current PIS.


The work of the PIP had allowed swift action to facilitate acquisitions that may otherwise have been lost to other investors. Rother District Council was becoming known to agents as being in the market for acquiring property and sites were being brought to the Council’s attention. However, opportunities that met the criteria of the PIS were few and far between and a more proactive approach would be required to identify premises.  Both the officers and the PIP would continue to assess each opportunity on its own merits.


RESOLVED: That the report be noted.


(Appendix 2 to this matter was considered exempt from publication by virtue of paragraph 5 of Part 1 of Schedule 12A of the Local Government Act 1972, as amended).

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