Agenda item

Context:

We received the Proposed Property Acquisition Policy, the purpose was for the committee to conduct pre-decision scrutiny of the proposed strategy for the acquisition of investment properties.

Key Issues:

The Council has undertaken a rationalisation programme of its operational assets to reduce holding costs. Given the scale of the budget cuts facing the Council during the MTFP, cutting costs alone will not be sufficient to manage the revenue shortfall.

It is proposed that the Council acquire investment properties that will facilitate a function e.g. economic development and or generate a minimum net income of 0.5% above the prevailing gilt rate to develop an additional revenue income stream as well as an appreciating capital asset.

The acquisition and purchase costs would be funded through the Public Works Loan Board, therefore there would be no impact on the Councils  capital programme. Any proposed acquisition would need to meet the minimum eligibility criteria as follows:

i.         The acquisition will result in a net annual return of 0.5% above the prevailing government gilt rate for a 20 year investment.

ii   Debt repayment has to be completed within 20 years.

iii  Acquisitions should normally be pre-let to a tenant with a strong covenant    with a minimum of 10 years unexpired on a commercial lease.

Member scrutiny:

• Members requested reassurance as to why this was the best method of investment and advised that it would have been preferred for a comparable paper to be presented.  Officers advised that the level of yield compared to capital value and risk had been considered in types of investment available.
• The committee were informed that, if adopted, the asset strategy would be reviewed in accordance and aligned with the Investment Property Strategy.    Members were reassured that Whole Place and Town Centre Regeneration were not in conflict.
• Further information was requested regarding how costs had been factored and whether maintenance charges, management costs and risks were being neglected. Officers clarified that, an initial screen would be undertaken and 4.5% net initial yield. Due diligence would then follow where Maintenance costs, loan repayments and marketplace comparisons would be taken into account.  The intention is that the acquisitions would be cost neutral and managed within existing team capacity, however workloads and time would need to be prioritised.
• Officers highlighted that this would be the right way to generate income for front line delivery and each business case would be considered individually.
• A member questioned whether best practice or similar schemes had been operated in other authorities and were advised that practice had been exercised in English authorities and it was utilised to achieve budget.
• Staff within the department would use appropriate skills and knowledge required to acquire relevant properties.
• A member highlighted that the discussion through select committee had enabled members with a fuller understanding of the purpose of the report and was confident in the abilities of the team.
• A member expressed concern regarding the perceived use of public money. We were reassured that appropriate policies, legislation and code of ethics would be adhered to.  
• Members expressed some concerns regarding the capacity to fulfil expectations identified within the report.  The committee were reassured that initial work would be undertaken to fill voids and would be focused on all business sectors.
• The committee discussed whether it would be more appropriate to look at buildings within or outside Monmouthshire.  Positive (e.g. benefits to County, alignment with corporate strategy, Whole Place) and negative (e.g. limited property availability) aspects were considered and we agreed that initially the strategy should be applicable to properties within Monmouthshire, however, this should not restrict other areas in future. 

Recommendation:

We resolved to agree recommendations within the report:

That Scrutiny review the proposed acquisition policy for investment properties prior to consideration by Cabinet.