Agenda item

A report is attached on the Commercial Estate Acquisition Strategy which provides the Panel with an update on the achievement to date against the revenue targets set for the Commercial Estate during the periods 2016/17 and 2017/18.

Derek Quilter – Divisional Director of Property and Project Delivery introduced the report. He explained that a number of reports would be brought to the Panel in the coming months (Review of the Property Market; Review of Commercial Estate objectives; Generating Income and Review on performance of the Commercial Estate). He explained that acquisitions are an important part of our income and two acquisitions alone (Melksham and Aztec West – details in the report) have achieved the 2017-18 target.

Panel members made the following points and asked the following questions:

Councillor Goodman referred to the fact that two acquisitions form 10% of the Commercial Estate income – he asked if there is a break clause which may put this figure at risk and also asked if the officer thinks it could be dangerous to have 10% of income based on two acquisitions. The officer explained that there are a large number of small tenants and the authority has been advised to diversify with some larger clients. The officer also explained that a risk analysis is always done where issues such as these are concerned. The Cabinet Member for Finance and Efficiency added that he had asked for a second opinion before this decision was made.

Councillor Goodman asked about the risks associated with 107% borrowing for new acquisitions in the commercial market. Richard Long – Head of Property explained that due diligence was explored as part of the Single Member decision on this. Regarding a query from Councillor Goodman on stamp duty, the officer stated that he would check and come back on that issue. Andrew Pate – Strategic Director, Resources explained that the report provides a summary only and the details are in the original decision report. He further explained that the main idea behind acquisitions is to diversify the asset base and deliver extra income.  Borrowing on the commercial estate portfolio as a whole is low. Derek Quilter assured the Panel that there is an extensive sifting process and that 7-8 properties have been turned down due to risk.

Responding to a query from Councillor Pearce about protection from interest rate rises, the officer explained that it is a fixed term loan for 25 years. Councillor Becker asked if Local Authorities could be crowding out commercial investors (as they cannot get the 25 year fixed rate deals).  The officer explained that Local Authorities are sometimes outbid. The Strategic Director explained that a number of Local Authorities invest to grow their income in order to put the money towards essential services such as social care.

Councillor Barrett asked for information on housing acquisitions. The officer explained that a report on ADL is coming to the July meeting of the Panel.

[Further information on these questions is contained in a note attached to the minutes.]

Richard Long, Head of Property talked through the section on risk (page 30 of the report)

Panel members made the following points and asked the following questions:

Councillor Furse stated that he felt that balancing away from retail is prudent but we must be mindful of any unintended consequences such as selling a retail property to a commercial buyer may result in empty properties in the city and also using public works and loan board money means Local Authorities have cheaper borrowing rates than the commercial sector – is this right? The Cabinet Member responded by explaining that the approach to diversifying is acquisition not disposal, only underperforming assets would be considered for disposal and these are few and far between. He added that acquisitions are there to broaden the base not replace existing assets. Regarding Councillor Furse question, the Cabinet Member stated that he is confident that an appropriate approach is being taken and the beneficiaries of actions are residents. He added that the Local Authority is a good landlord and he strongly supports the line taken.

Councillor Barrett asked that the figures in the table on page 32 of the report be replaced with a live example next time as the figures do not add up in this example. The officer agreed and confirmed that the example given is for illustrative purposes only. [This is also referred to in the attached note.]

Councillor Goodman referred to the Paribas reports’ example of the well run commercial estate in Shaftsbury, London and asked if officers had been in contact. Richard Long stated that he has not been in contact with them yet.

Councillor Becker stated that there is a view that prolonged low interest rates can lead to inflation of property over the country, he asked if the authority is vulnerable to this. The Cabinet member explained that, as the level of borrowing for this authority against Capital Estates is minimal, and our estate has been built up over 200 years, we are in a strong position.

Councillor Pearce stated that he is hearing from residents that there is a large number of empty shops in Bath and asked if this is true. Derek Quilter, Divisional Director of Property and Project Delivery, replied that it had been noted that there had been some business failures and maybe more than usual. He explained that the national void rate is 12% and for BANES it is below 6%. He added that all voids are on the Council website and, in many cases, there is already an interested party.  Many of these voids are not Council owned.

Councillor Goodman stated that the Paribas report of 11^th November reported that the vacancy rate in Shaftsbury, London is 2.6%;- he also asked if the Council pay rates on unlisted buildings. Richard Long, Head of Property, also explained that not all empty shops are owned by the Council and that the department works with tenants in difficulty and monitors the time it takes to let units. Derek Quilter added that sometimes temporary lets are used – especially during the Christmas period.

Councillor Becker asked if business rates could be reduced for retail outlets in Bath. The Cabinet Member explained that the Council does not set business rates, only collects them.