Meeting documents

Councillor Bowles

Deputy Leader and Cabinet Member for Economic Development and Regeneration

To consider the attached report.

Contact Officer:  Teresa Lane (01296) 585006

(a)          Decision(s)

            That Council be recommended to:-

(1)  Approve the proposed Commercial Property Strategy described in the Cabinet report, including a capital fund of £100m to be met from borrowing from the Public Works Loans Board, and a revenue budget of £100k from the New Homes Bonus (NHB) Fund, both to be reimbursed, together with the objectives, investment criteria and governance arrangements as set out in Appendix 2 of the Cabinet report (contained in the confidential section of the Cabinet agenda).

(2)  Approve the necessary changes required to the current approved  and operational borrowing limits as set out in the Treasury Management Strategy, in order to accommodate the increased prudential borrowing requirement as set out in the Cabinet report.

(3)  Authorise the Chief Executive in conjunction with the Director with responsibility for finance, and after consultation with a Panel comprising the Leader and Deputy Leader of the Council, the Cabinet Member for Finance, Compliance and Resources and one Member to be nominated by the opposition groups represented on the Council, to approve expenditure within the overall limit of the Strategy, subject to them being satisfied with the business case and risk assessment.

(4)  Require the officers to bring annual reports to Cabinet, the Finance and Resources Scrutiny Committee and Council on the progress of the Strategy and also to provide whatever information might appropriately be included in the Quarterly Financial Digest.

 (b)      Reason(s) for Decision(s)

The Strategy has been developed to support the Council’s commercial agenda to generate new income streams to help offset the significant cuts in Government funding and to finance the continued delivery of and investment in services to the local community.

(c)        Alternative Options Considered

Not to introduce such a strategy.  However this would not accord with the Council’s aim to operate in a commercial manner (subject to the checks and balances referred to in the Cabinet report) and continue to deliver high quality services to the community.

(d)       Relevant Scrutiny Committee

This matter is the subject of a report to full Council and as such is not subject to call-in.  The issue was however considered by the Finance and Services Scrutiny Committee on 5 September when a presentation on the aims and objectives was given.  All Members of the Council were invited to hear the presentation.

The Chairman of the Scrutiny Committee attended Cabinet and elaborated upon his Committee’s deliberations.  The Committee had undertaken a robust examination of the proposal and the Chairman gave a summary of the questions asked by Committee Members.  Overall however, the Committee was fully supportive of the proposal and commended its adoption.

(e)        Conflicts of Interest / Dispensation(s)

None.

Cabinet received a report proposing the introduction of a commercial property investment strategy to support the Council’s commercial agenda and generate new income streams to offset significant cuts in Central Government funding and finance the continued delivery of and investment in local services.

The overall aim of the strategy was to acquire and build a commercial property portfolio that generated income for the Council using a strong, stable financial model with an acceptable level of risk.  Commercial income generated from property acquisitions would be used to help fund the delivery and enhancement of services to the local community and support the delivery of the District’s growth.  The primary objectives of the strategy were to:-

·         Create a diverse portfolio with a range of risk, returns and property uses.

·         Provide security of income by the strength of covenant and length of lease.

·         Have a focus on high growth prospects of the District with some development risk.

·         Meet the commercial aim and if possible utilize and lever the knowledge, existing assets base and expertise of the Council to invest in ways which support the strategic growth of the Vale.

The above objectives had enabled a number of parameters and guidelines to be developed to ensure that proposed acquisitions met one or more of the aims.  These parameters and guidelines were submitted, as referred to in the confidential part of the Cabinet agenda.

The proposal was for a property acquisition capital fund of £100 million sourced from a loan from the Public Works Loans Board (PWLB).  An additional revenue sum of £100k was also required to support the fees needed as part of the acquisition process, e.g. agents, legal and stamp duty.  These fees would be deducted from the purchase price and recovered from the income over time.

Depending on the number of assets acquired, the in-house asset management capacity needed to manage  the asset after acquisition would be reviewed.  Each acquired asset would require an asset management plan and any additional capacity needed to deliver this would be factored into the business case for acquisition and recovered from the income over a period.

Strong governance was needed coupled with agile decision making to ensure that suitable opportunities which came onto the market could be effectively bid for.  It was therefore proposed to establish a Commercial Property Investment Panel to consider the business cases, with delegated authority being given to the Chief Executive in conjunction with the Director with responsibility for finance and after consultation with the Panel to approve acquisitions/disposals.

The strategy and performance against the objectives would be reviewed annually by the Finance and Services Scrutiny Committee, Cabinet and Council, with a high level summary report being included in the Quarterly Financial Digest.

Town centre developments or other developments which had a stronger orientation towards regeneration/place would not be included within the strategy, which would be purely commercially driven.  The Council already owned a number of commercial assets and the intention would be that these assets and their performance would be measured against the strategy and objectives  to inform decisions about their future.

The specific supporting information used to shape and develop the strategy was appended to the Cabinet report (in the confidential section of the agenda).

The Council had an established interest in property and currently owned and managed a range of properties, from industrial units to offices.  These properties generated an income offset by the asset management costs and any capital repayment.  AVDC was also a 50% owner of Aylesbury Vale Estates (AVE) which had been set up as a joint venture with Akerman LLP in 2009.  Whilst the recession during that period had proved to be challenging, the value of the portfolio had grown and both the Council and the private investor had now received a dividend payment.  Further dividends were forecast alongside the investment of capital receipts in new properties to generate further revenue.

AVDC had also in recent years built a number of properties in Aylesbury Town Centre.  These included Waitrose, Travelodge and the University Campus Aylesbury Vale.  The Council would receive rental income from the commercial space which formed part of phase one of The Exchange (formerly known as Waterside North), currently under construction.  These assets as opposed to those described previously in this minute, were orientated towards the Council’s leading role in place shaping and town centre regeneration.  They generated an income through rental, but the results of their provision and therefore the reason for AVDC investment, was wider than purely commercial.   By helping to generate footfall and confidence in the town, these new services had acted as a catalyst for investment in the Friars Square Shopping Centre and had attracted new restaurant operators and had encouraged the conversion of long term empty offices to homes.

Property was increasingly proving to be an attractive way to generate income due to the ways that risk could be managed, its long term nature and stable cash flow characteristics.  The Council’s ability to access the PWLB to borrow at favourable rates additionally provided the opportunity to maximise its return on capital investment.  Whilst AVDC intended to continue its partnership in AVE, the strategy would provide an opportunity to enhance the Council’s existing portfolio and have direct control over the financial benefits it could deliver.  The strategy contained in the confidential part of the Cabinet agenda had been formulated with the support of Monagu Evans, leading experts in the property sector.

Many councils had recently turned to property investment to support their budgets.  Some had made investments without going through the rigorous process of understanding what the objectives of the strategy were and setting clear parameters to make sure that acquisitions met those objectives.  The input of Montagu Evans, with their experience in the market both in the private and public sector community had helped shape a strategy which avoided the mistakes which other councils had made and had clarity, strong governance and a clear delivery plan.

As referred to elsewhere in these minutes, the implementation of the strategy would require changes to the Treasury Management Borrowing Limits.  The Finance and Services Scrutiny Committee had received a similar report at its meeting on 5 September and where a presentation had been given, to which all Members of the Council had been invited.  The Committee Chairman attended the Cabinet meeting and elaborated upon the Committee’s deliberations.

The Committee had made a number of observations, including:-

·         The need to ensure strong governance arrangements which also provide sufficient flexibility for the Council to react quickly to investment opportunities.

·         The need for careful due diligence within the context of the investment opportunities that presented themselves.

·         The need to look at a wide range of investment opportunities and for strong criteria for selection The need for the Council to ensure that it was protected adequately from wide fluctuations in the rates of return.

·         The impact, if any on the activities of AVE.

Overall, however, the Committee had been fully supportive of the proposal.

RESOLVED –

 That Council be recommended to:-

(1)  Approve the proposed Commercial Property Strategy described in the Cabinet report, including a capital fund of £100m to be met from borrowing from the Public Works Loans Board, and a revenue budget of £100k from the New Homes Bonus (NHB) Fund, both to be reimbursed, together with the objectives, investment criteria and governance arrangements set out in Appendix 2 (contained in the confidential section of the Cabinet agenda).

(2)  Approve the necessary changes required to the current approved  and operational borrowing limits as set out in the Treasury Management Strategy, in order to accommodate the increased prudential borrowing requirement as set out in the Cabinet report.

(3)  Authorise the Chief Executive in conjunction with the Director with responsibility for finance, and after consultation with a Panel comprising the Leader and Deputy Leader of the Council, the Cabinet Member for Finance, Compliance and Resources and one Member to be nominated by the opposition groups represented on the Council, to approve expenditure within the overall limit of the Strategy, subject to them being satisfied with the business case (s) and risk assessment.

(4)  Require the officers to bring annual reports to Cabinet, the Finance and Resources Scrutiny Committee and Council on the progress of the Strategy and also to provide whatever high level information might appropriately be included in the Quarterly Financial Digest.