In Nov 2019 Cllr Paul Arnott expressed concern about EDDC becoming a “Casino Council” with its attempts to ‘actively assess commercial investment opportunities’
East Devon District Council completed the acquisition of the Ocean Blue leisure complex on Exmouth seafront in March 2020 for £2,700,000 using the council’s Commercial Investment Fund.
This is the first investment that the council has made using its £20,000,000 Commercial Investment Fund.
The fund is designed to generate £450,000 nett income per annum to support council services and activities going forward. This will help address future budget challenges for the council and contribute to wider growth and prosperity for residents, businesses and visitors to East Devon. See East Devon Watch and EDDC publicity.
(And then there is Skypark – owl)
Here is cautionary tale about council investment deals that the new administration might note.
A council that has bet more than £1 billion of taxpayers’ cash on commercial property has secretly let a key tenant put off paying millions of pounds in rent because of the coronavirus pandemic.
Spelthorne council in Surrey is said to have agreed an 18-month rent deferral with WeWork, the troubled property management company, amounting to a £4.5 million short-term loss for the authority.
The deal is likely to add to fears that families across the country face higher council tax bills and reduced public services as local authorities’ multibillion-pound bets on commercial property turn sour.
Councils across the country have borrowed £6.6 billion since 2016 to buy shopping centres and office blocks to replace revenue lost by government cuts. Council finances, however, are now taking a hammering as tenants default on rent.
A report leaked to the Bureau of Investigative Journalism, a non-profit organisation based in London, and seen by The Times, claims that three senior councillors at Spelthorne agreed to the company’s request to help it “absorb difficulties brought about by the Covid crisis”.
The deal calls into question the council’s investment strategy. With other tenants struggling to pay rents owed to the council, the provision of local services is threatened. In the past five years Spelthorne has borrowed more than £1 billion to buy offices and shops so it can use the rental income to help fund local services.
The purchases include £40 million spent on a shopping centre weeks before the lockdown.
Nearly £10 million of Spelthorne’s annual spending on services is now funded by its investments — more than the money from council tax, business rates and government grants.
The report claims that senior councillors agreed to the plan with WeWork.
The councillors admitted that they would struggle to find another tenant for the Hammersmith Grove offices in west London. They would face significant costs if WeWork had to leave the building. The council bought the building for £170 million in January 2018.
In exchange for the rent deferral, WeWork is said to have agreed to extend its 20-year lease by a further five years. This effectively means that Spelthorne council would only start recouping the lost income from 2037.
WeWork is itself facing great financial difficulty. The US company, which sublets space to freelancers and small companies, has laid off 2,400 staff around the world after its stock market flotation failed. It is undergoing a second round of redundancies in Britain.
The council is also believed to have granted a rent deferral, for 13 months, to a tenant at another of its investment properties, the £73 million Porter Building in Slough.
It is unclear whether the council can afford to offer deals to its other tenants. It had 41 “commercial clients” connected to its property portfolio in June last year. Before the crisis the net return on the council’s property investments was less than 1 per cent after costs and reserve funding.
The WeWork deal was allegedly voted through behind closed doors on Monday morning by a special investment committee that only has three voting members.
The committee included Ian Harvey, who had been the council leader who led the £1 billion investment programme, and his wife, Helen, who was appointed by her husband as the council’s cabinet member for investments.
Mr Harvey resigned as council leader at a meeting last night, however, before a motion was brought calling for him to be removed.
John Boughtflower, a Conservative councillor, was voted in as his replacement. He pledged to launch an investigation into the £1 billion investment programme.
He said that his first action as leader would be to introduce a spending limit so “no single person will ever again have authority to spend tens of millions of pounds without the scrutiny that residents expect and deserve”.