Two more Suffolk councils have jumped on the property bandwagon – investing tens of millions of pounds in shop and car dealership premises miles away from the county.
Babergh and Mid Suffolk Councils have set up their own property investment arm to buy commercial buildings to provide the authorities with a revenue stream through the rents they collect.
So far they have made three purchases – the Marks and Spencer store in Brentwood in Essex, the building occupied by Caffe Nero and Wagamama in Peterborough, and a business park occupied by four car dealerships on the edge of Milton Keynes.
The councils have borrowed a total of £50million from the Public Works Loans Board to help finance their property deals – a move which has irritated the opposition Green Group on Mid Suffolk Council.
The councils have not made the investment directly. They have set up a property company, CIFCO Capital Ltd, which is owned 50/50 between the two authorities.
Its directors include former Mid Suffolk council leader Derrick Haley and former chair of Babergh’s strategy committee Nicholas Ridley – alongside property professionals.
CIFCO Capital was incorporated in June last year and between December and the start of this month the purchases in Peterborough, Brentwood and Milton Keynes were registered with Companies House.
However Green Party councillor Rachel Eburne said her group was concerned that the capital raised by cheap borrowing was not being used to build new homes in the district.
She said: “We don’t have any problems with investing money to make a return – but why is it being spent to buy commercial properties far away from our districts?
“Why not use the money to build new council homes that are desperately needed? They would provide a rental income and we’d get a new homes bonus. And there would be something positive happening for the area.”
However strict government rules are applied to what loans can be used for – the Public Sector Loans Board applies strict limits to how much local authorities can borrow to build new homes and is more relaxed about lending money to them to allow them to invest in commercial property deals.
Councils defend putting millions into property outside county of Suffolk
A statement from the administration of Babergh and Mid Suffolk councils defended the decision to invest millions in business premises outside the county.
It said: “As part of our wider Assets and Investment Strategy we have established CIFCO Capital Ltd – set up to generate ‘profit for purpose’, and provide an income to support the councils’ to deliver their priorities and services.
“CIFCO’s Board has a wide range of skills from property, finance and development backgrounds, as well as being supported by an experienced fund manager.
“By spreading investment across sectors and locations, including recent purchases in Peterborough and Brentwood, the Council is managing and reducing risk to provide secure income and capital growth.
“However this is not the whole story. Outside CIFCO the Councils have also purchased properties in the districts: not only have we bought and built 160 new homes in the last three years, we have bought land with the aim of building 300 homes for rent, shared ownership and sale in the next three years.
“We are spending £2.56m in Stowmarket around the Regal Theatre, and thanks to previous property purchases have been able to gift Gainsborough’s Chambers in Sudbury to the Gainsborough’s House Society: both projects are expected to result in more visitors, more spending and more economic growth in our two largest towns.
“We have a duty to ensure taxpayer’s money is spent for the benefit of the districts. By investing both in housing and economic opportunities within the districts, and in profit generating sites further afield, we are supporting the needs of our residents while also securing an income that can be used to continue to deliver services even as local government funding is reduced.”
Why do councils borrow huge sums to invest in commercial property?
Commercial investments have become a common way for councils to boost their earnings as they face cuts in government grants and caps on council tax rises.
Councils are able to borrow money at very low interest. They can then lend that money to a company they own which can use it to buy property and then earn money from the rent.
If the council borrows money at a rate of about 2% and then gets rent to the value of 6-8% of a building’s value, the difference can provide a healthy income.
Ipswich council has done several of these deals – all within the town boundary – which earns about £1.8million a year. That is, according to borough leader David Ellesmere, enough to pay for its waste collection and sports service.
Some councils have invested much larger sums – Spelthorne Council in Surrey has borrowed £422million for property deals. That is more than £10,000 for each household in the district.
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules here