Council property investment firm plans supermarket and drive-in investments despite two years of losses
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A property investment firm owned by two Suffolk councils has posted losses for a second year in a row – but council chiefs say the long term investments will grow.
Figures published ahead of Babergh and Mid Suffolk councils’ joint scrutiny committee next week showed a £3.5million loss last year for CIFCO Capital Ltd, the jointly owned investment arm which buys commercial property as a source of income to combat squeezed council budgets.
The authorities said that loss was down to one-off acquisition costs for two new properties bought in the last year, as well as “a readjustment on the value of the portfolio as a whole”.
It follows a £3.1m loss posted for its first year of trading, but according to the council the portfolio of 14 properties is bringing in an annual income of around £1.6m per year to prevent cuts to services.
Scrutiny committee will next week assess the company’s business plan for the year ahead, which says the company will diversify into other markets such as supermarkets and drive-ins alongside its existing retail, commercial and office buildings.
Babergh’s Liberal Democrat cabinet member for assets and investment, David Busby, said: “CIFCO’s performance is providing significant returns to the council, even in these unprecedented times. “As with any investment, there will be initial, one-off costs and over time property values will fluctuate. In the long term, we expect our investment to grow providing a valuable revenue source for the councils to benefit our residents and businesses.”
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Conservative Peter Gould, cabinet member for assets and investments at Mid Suffolk added: “Like all local authorities, we are under unprecedented financial pressure to deliver services to our residents.
“The aim of our investment through CIFCO is to deliver a source of income for the long term rather being forced to make reductions to our services.”
However, opposition councillors have questioned the continued drive to invest in property given the latest round of losses, the fact that just one investment is in Suffolk and pointed to a government consultation which proposes to curb the ability of councils to use property investment as a source of income.
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To date, the councils have agreed to borrow £50m each for investment, with around £60m in total having been spent. A deadline of October 2021 has been set to use the remaining £40m borrowed.
Green group leader at Mid Suffolk, Rachel Eburne said: “I am amazed that the Conservative administration is still continuing to borrow to invest in properties outside of the council’s district area.
“Government has strongly signalled its intent that councils should not be borrowing for commercial property investment purposes and Mid Suffolk citizens have been saddled with nearly £50m of debt for many years to come.
“The current loss, while still on CIFCO’s books, is still ultimately a liability for the council and a very significant one compared to the council’s net annual budget of around £10m.”
Green group leader at Babergh, Robert Lindsay added: “We could have put £100m into building houses for people in the district, this would have been a far more stable return on our investment as well as providing homes for our own citizens in Babergh and Mid Suffolk.
“A big part of the £3.5m loss seems to be through writing down the value of the properties they have bought, no doubt because assets such as office blocks have a far dimmer long term future in the light of the shift to working from home, brought about by the pandemic.”
The council said the loss would only be realised if the properties were sold, but were long term investments aimed at delivering regular income.
It said there was a thorough vetting process of potential properties that included risk assessments. Around 80 potential investments have been turned down to date, according to the authority.
It added that CIFCO income is helping fund the building of 180 new council houses across the two districts in the next two years.
Once the plans have gone to the scrutiny committee, each council’s full council meeting must give a final sign-off for the plans in July.