Agenda item

Members received the report of the Executive Director on the Colonnade, Bexhill which detailed its useage since the refurbishment of the seafront under the Next Wave programme in 2010/11. 

During 2016/17 a Members’ panel oversaw a review of the Council’s options for the Colonnade, the conclusion being that whilst other potential uses could be considered, a café/restaurant remained the most likely viable use for the property. 

Marketing of the Colonnade was undertaken in 2017 through commercial agents as well as direct follow-up of previous contacts and approaches to local entrepreneurs.  Three expressions of interest were received; these were considered by the Members’ panel who concluded that only one proposal was worth pursuing further.  The panel subsequently met with this party and was recommended to Cabinet in October 2017.  Regrettably however, due to a change in financial circumstances, the proposed tenant was subsequently unable to secure the capital needed to proceed and in December 2017 the party withdrew.

Following further consultation with the cross party Members’ panel, it was concluded that the best option would be to increase the commercial offer and income streams derived at the Colonnade by partially subdividing the western half to create four additional retail kiosks, while retaining a sizeable food and drink facility.  It was considered that this facility could either then be leased out externally, operated by the Council in-house, or run in partnership with a third party.

Due to the cost and level of fit-out required, it was considered unlikely that an alternative third party operator would be found that met the Council’s requirements.  It was also considered important to ensure that the Colonnade was open for business during summer 2018.  Accordingly, Cabinet resolved in January 2018 to proceed with the establishment of a temporary in-house café/restaurant offer at the Colonnade, with the future operation to be kept under review.

The Council had previously approved a capital contribution of up to £100,000 to a prospective tenant towards the cost of fitting-out works and in January 2018 it was recommended, and subsequently approved, that this be increased to £260,000 to meet the entirety of fit-out costs on the basis of the Council operating the premises. 

The Colonnade Bexhill Ltd was established by the Council as a trading company to manage operations at the Colonnade in April 2018.  This company employed the staff and entered into the various arrangements needed to operate the business, including with suppliers, service contracts, till system, furniture, etc.

Council officers were appointed as Directors to get the company established and the administration of the company was supported by other officers of the Council.

The Council embarked on the recruitment of a Catering Manager to oversee the set-up and operation of a trading company and the business and they started in April 2018.

A complete fit-out and equipping of the Colonnade was undertaken commencing on 7 June 2018 and due to finish on 5 July.  The Colonnade opened for trading on 21 July 2018.  As reported to Cabinet in November 2018, there were delays in getting a gas meter installed at the property.  Although a gas supply had been installed as part of the seafront improvement works in 2010, this had not been used since.

When the likely timescales for the installation of the gas became clear, the decision was taken by the trading company to review the staffing levels in light of the available offer and likely income generation.  As a result, the employment of the Head Chef was terminated and the hours on offer to the front of house team were significantly reduced. During August and early September 2018, the Sous Chef and the Catering Manager resigned and were not replaced.  The gas meter was connected in early October and the kitchen equipment was connected and commissioned on 9 October.  The seasonal contracts were all terminated on 5 September 2018, leaving a team of four to run the operation on a five day-a-week basis. 

Following the opening of the Colonnade in summer 2018, the Council was approached independently by several operators expressing an interest in taking on the premises.  Discussions took place with all of these, resulting in the report to Cabinet in October 2018 and the decision to let the premises to Wingrove House Ltd (Minute CB18/29 refers).

The total investment in fitting out the café and new kiosks, including all building work, furniture, kitchen fit-out and professional fees, was £318,776.  Offset against this was the sum of £12,000 received from sale of the furniture to the new operator.  (A summary of the capital costs was shown at Appendix 2 to the report.)  The company (The Colonnade Bexhill Ltd) had ceased trading and the outstanding debt of £58,000 had been written off in the 2018/19 financial year.

Overall the company generated turnover of £53,015 and expenditure of £110,487, including cost of sales, staff and other costs.  (A summary of the trading account was shown at Appendix 3 to the report.) The loss was principally due to the reduced sales as there was no gas supply available during the peak trading period.

In total the new rental income generated from the Colonnade café and kiosks was £53,300 per annum, comprising £24,500 from the café (including two kiosks) plus £28,800 from the remaining nine kiosks.  This represented an increase of £36,900 per annum from the previous income of £16,400, comprising £2,000 per annum received from Tea Beside the Sea and £14,400 from seven kiosks.

Based on the uplift in rental income, the outcome represented a return on investment of 9.54%, including write-offs from the trading operation.  This compared favourably to the target figure of 6% for the Council’s commercial property portfolio as a whole.

The asset was valued in March 2019 at £560,000, an uplift of £165,000 from the previous valuation.

It was evident from the marketing carried out over several years and discussions with potential tenants, that the property’s unique attributes and location were attractive to operators, but the amount of investment required to fit out the property was a significant obstacle to securing a letting due to the limited trading history.  Only once the Council had invested in the fit out costs did the property become a viable option for occupiers who were then willing to make a long-term commitment to operate.

The delay in getting a gas meter connected was the single greatest setback to the operation of the café.  Whilst with hindsight the application process could have commenced sooner, the supply was already physically present in the building and a significant part of the delay was due to the gas network provider having incorrect records.

Members had the opportunity to ask questions and the following points were noted:

•           the Executive Director paid tribute to the officers involved in the establishment and administration of the trading company, who had undertaken their roles in addition to their existing duties as employees of the Council,  namely the Head of Service Acquisitions, Transformation and Regeneration, the Property Investment and Regeneration Manager, the finance department and legal department.  He also expressed thanks to the staff employed at the Colonnade during that time;

•           the cost of the waterproofing works had not been included in the report.  This was a repair cost and the Council remained responsible for maintaining the structure of the Grade II listed building, responsibility within the lease was for internal maintenance only;

•           the rent would be reviewed every five years, linked to the Retail Price Index;

•           there were break options within the lease;

•           although financial projections for The Colonnade Bexhill Ltd showed a profit, securing a qualified tenant with a proven track record and therefore a guaranteed rental income, was the preferred option; and

•           that the learning outcomes were:

o          a public/private partnership of capital/revenue seemed to work well and perhaps could have been looked at earlier;

o          project management, particularly of the gas supply; and

o          onus on the officers undertaking their role of Directors of a company as well as officers of the Council.

RESOLVED: That the report be noted.