Brentwood Borough Council is set to double the amount it can invest as a commercial landlord by £30m – part of a £5.7bn spending spree by local authorities across Britain over the past decade.
The council’s private investment company Seven Arches Investments Ltd – which was set up in 2018 as a vehicle to invest money borrowed from the government at low interest rates into commercial properties that can be rented out at higher rates – already has the capacity to draw down a total of £30m.
Of that a total of £13.5m has been used to purchase two properties at One Curo Park, St Albans, Hertfordshire and 44 East Street in Chichester – currently home to a branch of TK Maxx.
These properties generate gross income of £740k per annum – an important element of revenue given the cuts to Government local authority funding which in Brentwood has fallen from £2.3 million in 2016/17 to £578k for 2019/20. Revenue Support Grant has been nil from 2018/19.
The wholly-owned company SAIL has initially focused on letting out commercial properties but could be extended into other areas such as service provision.
But for the moment it wants to extend its capacity to buy more properties – with increased focus on investing within Brentwood and especially to provide economic benefit in the borough.
It says the remaining £16.5m available “drastically restricts the council’s ability to fund investments that could make a significant contribution to the economic development of the borough.”
Between 2008 and 2015 total councils’ property expenditure across the country bounced along at between £24m and £298m. However, there has been a huge rise in the past three years with total expenditure in 2018 reaching 1.7bn.
There have been some notable examples of councils becoming commercial landlords by borrowing at a low rate of interest from the government’s Public Works Loan Board (PWLB) and using higher rental income from the sites to shore up their finances.
Spelthorne council in Surrey has borrowed £1bn to invest in property.
A statement to the council to be heard next week said: “Following a review of the Council’s funding objectives in respect of SAIL it was recommended that increased focus should be on in-borough investments.
“In particular, the investments should look to provide an economic benefit to the area.
“However, out of borough investments will still be considered where appropriate, as part of the portfolio’s risk management approach.
“The remaining loan facility available to SAIL is £16.5m.
“Having considered appropriate in-borough opportunities, it became apparent that this remaining amount drastically restricts the council’s ability to fund investments that could make a significant contribution to the economic development of the borough.
“As such a further £30m extension to the facility is requested.
“This would provide a total remaining facility of £46.5m and assist with the council’s commercial income targets.”
The proposals will be discussed on October 8.