Suffolk councils could be forced to stop investing in property outside of the county
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The property investment arm of two Suffolk councils says it will pursue other funding mechanisms to acquire commercial assets if use of public loans are banned.
The Treasury has launched a consultation into the use of Public Works Loan Board (PWLB) borrowing, and in particular the use of such cash to buy property outside of councils’ districts.
Property investment has become an increasingly regular avenue for underfunded councils to bring in income, which helps to protect against service cutbacks or higher council tax rises.
But with soaring numbers nationally buying commercial property out of their district, the government has said it plans to curb such investment, and is looking to block the PWLB as an avenue for funding schemes.
MORE: The properties outside Suffolk Babergh and Mid Suffolk have boughtBabergh and Mid Suffolk councils have each borrowed £50million to pump into commercial property through their joint company, CIFCO Capital Ltd, acquiring 14 properties nationwide with just one purchased in Suffolk.
The firm says it would look at other funding streams to continue investments.
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Emily Atack, CIFCO’s managing director and assistant director for assets and investments at the two councils, said: “The government proposals do not seek to impose a blanket ban on property investment by local authorities, but proposes stopping use of the Public Works Loans Board as a funding source.
“There would be other sources of funding open to local authorities to use.
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“CIFCO made a total net return to our councils of £1.634m for 2019/20, up from £1.4m last year. That’s a significant income for our councils that we have been able to invest in our services and communities without having to rely on council tax or other sources of funding.
“With each of our investments through CIFCO we have taken professional market and legal advice and undertaken a full scrutiny test to mitigate our risks, and ensure our portfolio is balanced between tenants, sectors and locations. It’s thanks to this approach that CIFCO can weather the current storm of Covid-19 and we are confident the portfolio will continue to deliver important income for the councils in future.
“We are keen, therefore, to make our case in our response to the consultation, challenging some of the government’s assumptions and championing financially prudent councils who can demonstrate that they have applied the correct levels of governance and diligence in their approach to commercial property investment.”
CIFCO has invested in a mix of property, including retail and coffee shops, car showrooms, warehouse space and offices, but the Covid-19 situation is expected to have jeopardised the levels of income over the last couple of months.
MORE: Councils agree fresh £50m borrowing for property investmentCIFCO confirmed it had made a full repayment to the councils in March and had collected over 70% of the rent for the March quarter, but admitted June was expected to be more challenging.
However, the firm said that it still anticipated rent received would exceed borrowing costs.
The government’s consultation runs until July and it is not yet clear when any curbing of property acquisition through PWLB funds would come into force if it goes ahead.
However, it is understood that would be for preventing future investments rather than being a mechanism for councils to sell existing property. Buying property within the districts as regeneration projects are also expected to still be allowed under the rules.
The strategy had been opposed by the opposition Green groups at both councils, which felt the money should instead be used to fund affordable homes in the district.
Mid Suffolk Green group leader Rachel Eburne said: “We continue to oppose CIFCO in its current form and remain strongly against investment outside of our area – benefitting towns such as Epsom and Milton Keynes.
“It is a high risk venture and looks like government agrees with us.
“Income won’t be secure going forward and is bound to be affected by Covid-19 – whether tenants ask for rent holidays or simply can’t pay the rent due in full.
“Ultimately we should be investing in our own district particularly in housing for young people, the vulnerable and the elderly.”
Robert Lindsay, Green group leader at Babergh, added: “No-one can say they could have predicted this particular crisis. But Babergh Green party was always opposed to gambling taxpayers’ money on commercial property out of our area, when it could have been spent on building much needed housing in our district. With the rental income dropping from these properties, there is a real risk we will soon not be able to meet the interest payments on the loans we took out to buy them.”
MORE: Ipswich council buys Peterborough business parkElsewhere, Ipswich Borough Assets, owned by Ipswich Borough Council, announced in May it had bought its first asset outside of Suffolk – Peterborough Business Park at a cost of £22.5million.
IBA chairman and borough councillor Colin Kreidewolf at the time of the acquisition said: “We felt it was right to spread our investments wider – both geographically and in business sectors. We have invested well in retail parks and town centre shops, this was an opportunity to buy a business park with very strong tenants with long leases.”
IBA’s portfolio is expected to bring in £3m per year income.