Agenda item

Report of the Director of Neighbourhoods, Environmental Health and Assets attached.

The Chair brought consideration of this agenda item forward to enable the External Auditors to be in attendance during the discussion and contribute if felt appropriate.

Further to Minute No. 27 of the meeting held on 13 September 2017, the Committee considered the report of the Director of Neighbourhoods, Environmental Health and Assets which provided details of the draft Investment Property Strategy and the proposed governance arrangements, the use of commercial experts and their procurement. 

The strategy document was appended to the report and set out the context for investment in commercial property and identified a range of criteria to be considered for each investment along with the due diligence and governance arrangements to be followed.

The Council had previously identified investment in property and assets as a source of income to support the delivery of the Medium Term Financial Strategy. An income target of £300,000 had been established and a Borough Investment Fund of £3.824m was created to fund this investment initially. Additional funding could be identified if other investment opportunities arose.

The Committee was asked to agree and recommend the strategy along with associated governance arrangements to Cabinet.

It was explained and confirmed that a decision on the strategy was a matter for the Cabinet and not full Council. Whilst members had previously been provided with a flow chart on the decision making roles of Cabinet and Council it was felt that not all members might have appreciated the significance and it was requested that some explanatory text be included and circulated to members.  This was accepted.

The Committee went through both the report and strategy document in detail.  During consideration the discussion included comments from the Committee on the following areas

·         rates of return on investment – the anticipated return was influenced by the type of tenant/length of tenancy (usually the higher the risk, the higher the rate of return);

·         procurement of expert/professional services – the process to be followed and whether local agents were to be considered and advised the Council was going through the Crown Commercial Services; Framework. This included an explanation of the period of commission and threshold level of future acquisitions; 

·         existing assets – this was a wider approach and these would be reviewed, looking at retention, investment or disposal. Going forward assets would link into the Council’s Vision and Corporate Plan around growth;

·         it was confirmed that this strategy was separate to any shared service arrangements with Chorley BC;

·         due diligence – if the process regarding an item was finalised after a meeting of the Cabinet, a special meeting of the Cabinet would be convened and any decision would be subject to Call-in;

·         it was confirmed that the Chief Executive was the Corporate Property Officer;

·         approval of any additional amount to invest outside the Budgetary Framework or for additional borrowing would be subject to confirmation by full Council;

·         it was accepted that investment in property by the Council should take factors into account such as economic growth and social benefit, although the Council was looking at investment opportunities that would provide a financial return to support its non-essential services;

·         risk – the process would see assets regularly re-evaluated and probably reported quarterly in line with existing budgetary processes and it was confirmed that the impact of a significant reduction in value of assets would only be on the balance sheet.  The External Auditor commented that they would look at that as part of their Value for Money conclusion. The development of schemes and their governance arrangements would be part of their assessment work; 

·         the committee was informed that it was desirable overall for the Council to have a more balanced property type portfolio; and

·         formal measurement of return – this had stopped following changes nationally, however, this could be re-introduced as part of the Transparency Agenda

In respect of the Council’s Investment Property Strategy document itself, the Committee suggested a few amendments to wording to reflect comments by the Committee.  In Section 4 (Strategy for existing commercial portfolio), the spread of properties in the portfolio should include retail but not use the word ‘predominantly’. Also the rationale for retaining lower yield assets be expanded to include meeting aims of the Council. In Section 6(e) (Investment Property Criteria - length of lease unexpired) following a query regarding WAULT (weighted average unexpired lease term), the Council’s target WAULT of 6-8 years be included. Similarly following an enquiry Section 6(h) (management issues) be expanded to be more specific around minimising recurring management costs with more emphasis on tenant responsibilities.

In respect of Appendix A (the Council’s pro forma) this has been drafted to capture core information for due diligence about a potential property investment.  A more detailed report would then be presented for consideration by the Cabinet.  It was suggested that this include reference to the investment’s level of risk (low/medium or high) and to how it sat with the Council’s strategy and its impact on the overall property portfolio. This was accepted. Similarly it was suggested and accepted that the Yield also be shown as a Net % in addition to a Gross %. 

RESOLVED (Unanimously):

That subject to the suggested amendments above being incorporated in to the Council’s Investment Property Strategy, the:

(1)       Investment Property Strategy and the governance arrangements outlined within the report be approved; and

(2)       Cabinet be recommended to adopt the Investment Property Strategy and the appointment of the external Property Investment expertise at the end of the procurement process.