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Agenda item
Land and Property : Commercial Property Investment Strategy
(Council Decision)
Minutes:
The Assistant Director, Financial Services and Revenues, presented a report which proposed that the council make significant additional investments in commercial property for the purpose of income generation, and also to support economic development and regeneration.
The council’s draft income generation strategy identified investment in commercial property as a key area for investment in order to strengthen its long term financial stability. The council already had experience as a commercial landlord and had recently purchased further retail units in the town. The Assistant Director, Financial Services and Revenues, commented that it was beneficial for the council to diversify its property portfolio to mitigate risks of downturns in a particular sector.
The report proposed forming a council-owned property company, which would enable the council to consider opportunities outside of the borough and travel to work area. The report noted historically low borrowing rates, which would be used to support the additional investment. The draft strategy included a matrix to assess potential acquisitions, due diligence work would also be carried out on every potential purchase.
Councillor Chowney proposed approval of the recommendations to the Assistant Director, Financial Services and Revenues report, which was seconded by Councillor Fitzgerald.
RESOLVED (by 6 votes for to 2 against, with 0 abstentions) that:
1) The Commercial Property investment Strategy is approved;
2) Council approve supplementary capital expenditure for property acquisitions of up to £29m for the period 2017/18 to 2019/20 based upon £29m of borrowing commencing in 2017/18 (for economic and social wellbeing purposes and to generate on-going revenue streams). This sum will be reviewed on a regular basis;
3) Cabinet continue to determine the individual property acquisitions, following consideration by the Income Generation Board (Special Cabinet meetings may need to be held at short notice to enable the council to be sufficiently agile to take advantage of opportunities);
4) Delegated authority remain with the Chief Finance Officer (S151 officer) to meet revenue acquisition costs from revenues that are not chargeable against a capital budget – to include abortive costs;
5) The council’s asset management plan is updated to take account of this strategy and that economic development, regeneration and employment considerations continue to be the driving factor behind existing council property and land development opportunities within Hastings;
6) To seek opportunities for commercial acquisitions:
a. Within Hastings and its travel to work area to be procured directly by the council for both regeneration and income generation purposes
b. Via council owned property company for acquisitions outside this area undertaken for income generation purposes alone
7) Acquisitions outside the area to be focused on those areas in the South and Midlands where the local economy is likely to offer the A trading company to be established to provide flexibility of approach – the council is able to invest its own monies under existing investments powers in properties across the country, but anticipates the need to form a company if it wishes to purchase properties outside the borough for the sole purpose of income generation;
8) Appropriate due diligence be undertaken on each and every opportunity;
9) Given that the council’s risk appetite will be constantly changing depending upon the risks and opportunities it faces, future funding predictions and economic environment, each commercial property investment must be considered on its own merits and the financial position of the council at the time within an overall borrowing umbrella;
10)Further property fund investments to be considered as part of the 2018/19 Treasury Management Strategy – to be determined by Full Council in February 2018; and
11)Accept that there are many property related opportunities that present themselves to the council which are not specifically included within this strategy which may be considered commercial in nature e.g. investment in a new leisure centre. The council will look to consider all options for investment and the commercial property strategy may help to inform the decision making process when alternative options for use of council resources are being considered
The reason for this decision was:
The Council already has a significant property and land portfolio from which, as well as helping to drive economic development in the Borough, it derives a significant income stream. This directly assists the funding of Council facilities and services
Given the current funding reductions the Council seeks to build upon its existing knowledge and experience to significantly enhance economic and regeneration opportunities within the borough and also enhance its income stream from property or property related investments.
Property investments have been returning higher rates of return than the Council can achieve with purely cash investments. Money from the Council’s own reserves invested in property or Property Funds need to be surplus to medium term requirements or there is a risk that the Council would need to sell these at a time when there is the potential for a Capital loss.
The Council holds assets for a variety of purposes, and not purely for income generation. The Council’s more commercial property assets such as factories and shops generally achieve a good return (particularly as most are not encumbered by debt). The council does review the assets that it already owns and has been successful in developing land and buildings in its ownership – and will look to continue to do so.
The Council needs to prioritise new Income generation from any review of existing assets.Purchase of commercial property either in Hastings or beyond its boundaries provides the Council with opportunities to continue economic development and enhance employment prospects as well as develop and enhance income streams to assist in the future funding and delivery of core services.
Purchase of commercial property outside of the Hasting’s travel to work areas may be viewed as purely an income generation initiative and a trading activity – if borrowing the money to do so. A separate company would be set up to accommodate this.
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