Issue - meetings

Report by the Chief Operating Officer

12.1     The Chief Property Officer introduced the report and presentation.

12.2     The Committee discussed a variety of issues, which are summarised below.

Balanced portfolio

12.3     The Committee queried the means by which a balanced portfolio would be achieved, and asked about the assumptions on risk and reward underpinning the report.  The Chief Property Officer responded that a range of options would be considered, from existing assets providing a proven rental income stream, to development sites.  He confirmed that the market for low risk opportunities was tightening, which may restrict the choices available to ESCC as other authorities explore investment strategies.      

12.4     The Chief Property Officer set out that the Strategy was predicated on the basis of providing an income stream, and not on capital growth.  The Committee remarked that the property market is subject to cycles, and that, in particular, the commercial sector is volatile.  The Committee requested clarity on the criteria for stress testing any investment opportunity, and the effect of the Council entering the market.

12.5     The Chief Operating Officer reiterated that the Strategy was being developed to provide a mechanism by which the Council could derive income to support services, should the Council want to pursue this.   

12.6     The Chief Property Officer clarified that development of the details was the next piece of work by the Orbis partnership.  This would include stress tests, checking assets for patterns of liquidation of tenant firms, empty units and void periods.  Other criteria looked at would be location, a systematic check of the property and how it fits into the overall portfolio.  He set out that advice would be sought throughout the life of the asset, with regular check-ups. 

Supporting priorities

12.7     The Committee expressed support for investing in development that also supported the Council’s corporate priorities, and cited development of health-related facilities as an example.   The Committee also supported investment to support driving sustainable economic growth.  The Chief Operating Officer set out that discussions had been taking place with Health bodies, but that these had initially proved unfruitful. 

12.8     Councillor Smith provided the example of Aylesbury Vale District Council as holding assets unconnected with corporate priorities.  The Chief Operating Officer set out that the East Sussex property economy is not sufficiently developed to support a Strategy based solely within the County, presenting a high risk and low return.  

12.9     The Committee remarked on the need for clear communications on any strategy, to avoid a situation like the Icelandic banking crisis which affected individual local authorities’ finances.  The Committee felt that investment outside of the county may be harder to justify to the electorate, whereas a clear link to priorities would mitigate that concern. 

Borrowing and effect on ESCC Finances

12.10   The Chief Property Officer set out that the majority of the investment strategy would be financed by borrowing, principally from the Public Works Loans Board, as the Council does not have a large asset base.  The Chief Finance Officer confirmed that repayments would be at a fixed rate, repaying interest  ...  view the full minutes text for item 12

A presentation by the Chief Property Officer on the development of a Property Investment Strategy.

13.1     The Committee considered a presentation by the Chief Property Officer, a copy of which is in the Minute Book.

13.2     The Chief Property Officer explained the background to the proposals, including the uncertainty regarding future funding models based on a reliance on Council Tax income and retention of local business rates. An assessment of asset potential by consultants CBRE was highlighted, which showed the distribution of office, industrial, retail and residential assets within the county and immediate surroundings (Brighton, Haywards Heath, Crawley). 

13.3     A Property Investment Company, established as a body independent of the County Council, is the most efficient way of enabling the County Council to invest in property outside of the county.  Returns generated from that investment could then be re-invested in income generating assets inside the county, to support regeneration and development of the local economy.  The Committee discussed the principle of the County Council forming a Property Investment Company, with the potential impacts on competition

13.4     It was confirmed that: any new organisation would be a company limited by guarantee by the County Council; that officers could act as directors of the limited company; and that profits would be returned to the County Council.   Surrey County Council runs a property investment team successfully through officers with a full understanding of their assets and markets.

13.5     The Committee suggested areas for exploration, such as health and social care infrastructure including GP practices, integration with the SPACES programme, and retail opportunities for new start-up businesses.  Officers were advised to consider the risk profile and return period of any investment.  It was clarified by the Chief Property Officer that the principal driver of the Strategy was investment in existing income-producing assets, that could be relied on to provide an income stream for investment in the East Sussex economy. 

13.6     It was confirmed that the target for any Property Company would initially be to cover its operating costs and to generate a steady low risk yield, of 1-2% of the value of any asset acquired, which could be relied on in future budgets.   

13.7     RESOLVED further to investigate the development of a property investment strategy to generate income to continue delivery of the Council’s priority of encouraging economic growth.  Officers were encouraged to be ambitious while maintaining consciousness of being guardians of tax payers’ money.