Council owned property investment company reports on its successful first year
This week’s Overview and Scrutiny Committee was given a detailed report on the Council’s property investment company’s first year of trading.
As part of its strategy to become financially self-sufficient, in February 2017 the Council set up a £50m Property Investment Fund to generate additional income so it can continue to provide the services valued by residents. The Council no longer gets any Revenue Support Grant from the government and receives less money from Surrey County Council. The fund is being financed using available capital reserves and through borrowing at low interest rates.
The Council’s property investment company, Gryllus, made its first acquisition in September 2017 for £3.25m, which generates a net revenue income of £225,000 a year. This prime retail property is in Maidstone’s primary shopping area and the current lease agreement with Marks & Spencer runs until late 2022.
Yesterday, Marks & Spencer announced that should they secure planning consent and sign up to a new store in Maidstone’s Eclipse Park, they would move out of this particular store. However, the Council will continue to benefit from Marks & Spencer’s rent until late 2022 and is confident of securing an alternative national retail tenant in this prime location. This was taken into account when making the decision to purchase this property.
Through Gryllus, the Council is continuing to consider a number of purchases outside the district which provide a sufficient return to ensure a steady income stream for the Council.
A separate £20m Development Fund is being used to invest in projects inside the district which will not be purely commercial, but will assist the Council to achieve other priorities, including the regeneration programme, where the level of return is expected to be lower than that of the Property Investment Fund. The aim is to build a balanced and mixed property portfolio to minimise risk. Most councils in Surrey have similar property investment strategies.
Councillor Barry Compton, Chairman of the Overview and Scrutiny Committee, said: “This committee welcomed the update regarding the council owned property investment company and is fully satisfied that due diligence has been observed and the Council has invested wisely.”
Councillor Simon Ainsworth, Chair of the Resources Committee, said: “Investing money in properties which deliver good returns provides us with an alternative source of income to help us carry on providing good services and fund our ambitious regeneration programme. We are not concerned by Marks & Spencer’s announcement, as we bought the building, not the lease and are confident of another tenant being secured should Marks and Spencer move out. We will continue to report on our acquisitions, as well as exploring all other income generating options and driving efficiency.”