Members received the report of the Director – Place and Climate Change which gave an update on the Council’s activity in delivery of the Property Investment Strategy (PIS), and commitments against the £35m budget approved in February 2018. 

Since the previous report to the Audit and Standards Committee in May 2020, changes to Treasury Guidelines relating to the use of Public Works Loans Board (PWLB) borrowing had had an impact on the opportunities open to the Council in meeting the objectives of the PIS.  The COVID pandemic and lockdown had also had a detrimental impact on the Council’s ability to purchase suitable properties.  Nonetheless, the Council had been successful in several acquisitions in pursuance of both the PIS and the Council’s Corporate Plan.

The current PIS, adopted by the Council in June 2020, was attached at Appendix 1 to the report.  Its objective 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.  The PIS set out the types of property that the Council would seek to acquire and the factors that would be considered when assessing the suitability of potential acquisitions.  It also described how purchases may be funded and how the Council would manage risk.

The process for identifying investments remained the same as outlined previously; identified opportunities were subject to the seven stage acquisition process outlined at Appendix 3 to the report. 

Since the last report, a further three properties had been acquired, namely Land at Mount View Street, Bexhill; 35 Beeching Road, Bexhill (headlease); and 64 Ninfield Road, Sidley.  Members noted that, as detailed in confidential Appendix 4 to the report, the Property Investment Panel had also given approval to three further transactions with a total value of £11,697,000; two had yet to complete as they were undergoing the due diligence process, the other had completed in the last few days.  Once all completed, these would then take the total value of purchases and commitments to £30,347,001 against the original £35m budget.  Acquisition costs such as stamp duty and professional fees, and the total cost of demolition works at 1-7, Wainwright Road amounted to a further £2,685,503 also met from the original £35m budget. This left a balance of £1,967,496, which would reduce further for the acquisition costs associated with the properties referred to in the confidential Appendix 4.  In addition, the Council had approved the sum of £10m borrowing for the development of the site at Barnhorn Green, originally intended to be met from the initial £35m PIS budget.  As the PIS budget was almost fully committed, further budget approvals would need to be sought from Cabinet in order to facilitate further activity. 

The recent tightening of Treasury Guidelines around the use of borrowing from the PWLB meant that only properties within Rother District could  be considered, should the Council wish to borrow from that source and continue to benefit from the 0.2% Certainty discount rate.  The regulations explicitly required that a direct local social or economic benefit be demonstrated, rather than acquisition for purely financial gain.  The penalties for non-observance were strict, including withdrawal of access to all PWLB funding. Whilst this removed the risk of public borrowing being used for speculative investments, it did push councils towards regeneration-led acquisitions where there was either already market failure or risk of market failure, where the private sector were less likely to invest.  These were by their nature higher risk or required additional investment in order to realise a benefit in the longer term. 

The Council’s PIS was explicit in referencing local economic benefit as the basis for acquiring properties, which pointed towards properties within the district where the case for local economic benefit could be made.  Rother did not have a significant commercial property market and in general, transactions were small-scale; the opportunities locally for acquisitions that would make a significant contribution to meeting the Council’s income targets were few and far between.    Therefore, much of the Council’s activity was focused on development projects, such as at Blackfriars and Barnhorn Green, which would yield a return in the longer run but require time and investment to bring to fruition. 

Whilst there were likely to be few new acquisition opportunities that would make a significant impact on the Council’s revenue income, the Council would continue to explore opportunities within its existing portfolio to re-gear leases, particularly at Beeching Road Industrial Estate.  The Council had been successful in enabling regeneration activity through its acquisitions to date and there may be scope to re-gear ground leases elsewhere on the estate in order to generate additional revenue. 

Members were given the opportunity to ask questions and the following points were noted during discussions:

•           two thirds of the Mount View Street, Bexhill site was for an NHS mental health facility, the remaining third had been allocated for new housing;

•           Members requested and it was agreed that the quarterly Treasury Management Update report would contain more detailed information on income and costs of property acquired through the PIS, going forward;

•           the Council was working closely with Primary Care on a number of projects resulting in future regeneration of the district and a focus on public health;

•           the Homelessness budget was separate to the PIS budget;

•           the Council were alerted to potential opportunities by local agents and Members were also encouraged to make officers aware of any opportunities they might identify; and

•           as the PIS budget had been almost fully allocated, the current position and next steps now required review.

The Council’s interest in acquiring properties within the district was now well known by local agents, however opportunities that met both the criteria of the PIS and satisfied treasury regulations around the use of borrowing were likely to be few and far between. 

RESOLVED: That:

1)         the report be noted;

2)         further information on cost and return on property investments be included in the quarterly Treasury Management Updates; and

3)         as the Property Investment Strategy budget had been almost fully allocated, a review of the current position and next steps be carried out.

(Appendix 4 to this matter was considered exempt from publication by virtue of paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972, as amended).

(Councillor J. Barnes declared a Personal Interest in this matter as Vice-Chairman and Company Executive Director for the Council’s Housing Company and in accordance with the Members’ Code of Conduct remained in the meeting during the consideration thereof).

(Councillor Thomas declared a Personal Interest in this matter as Chairman and Company Executive Director for the Council’s Housing Company and in accordance with the Members’ Code of Conduct remained in the meeting during the consideration thereof).