Sedgemoor District Council's Commercialism Strategy
Fifteen years ago, 70% of SDC's income came from national government. We no longer get any Revenue Support Grant directly from government. Like local authorities around the country, Sedgemoor District Council has been looking at ways of generating income; set against the context of reduced funding coming to local government from the national Government. SDC is committed to keeping its portion of the council tax as low as possible whilst still delivering first-class services to its residents.
National Government has encouraged local government to become more commercial, business-like and generate income whilst remaining focused on our core purpose - to support and deliver for our communities.
The Council has adopted a Commercialisation Strategy, which sees the council acquire commercial property. The Council owns the asset and the rent from the tenants provides an income. A fund of £50m was agreed by Full Council on 20 February 2018 to support the. This strategy aims to enable the council to be more commercial, business like and generate income to support the services it provides, whilst remaining focused on our core purpose - to support and deliver for our communities.
How does the council decide which property to invest in?
In August 2018 Sedgemoor District Council formed a Property Investment Board. This Board meets on a monthly basis and takes advice from commercial property industry experts, Montagu Evans. The board is made up of Leader of Council; Portfolio Holder for Inward Investment and Growth; Portfolio Holder for Commercial and Asset Management and Co-opted - Opposition Leader.
Every decision that is made is being rigorously tested and checked in legal and financial terms prior to purchasing. They also make sure that the Council does not overpay for property and is not exposed to undue risk, especially in a market where significant changes are occurring nationally.
Once acquired the commercial assets are managed by the Council's Property and Commercialism Team and as experience grows it is anticipated that the team will take on more responsibility from our retained agents.
Sedgemoor is investing in a diverse range of locations and property types to make sure that it has a balanced portfolio that minimises risk.
How does the council pay for this?
The budget of £50m was agreed for investment in commercial properties in line with the commercialism strategy, in order to generate additional income. To date, this investment has been funded by borrowing, although this borrowing fluctuates between internal and external borrowing depending on treasury management decisions based on the council's cashflow position. It does not involve investing money that would otherwise have been spent on services.
Investments to date:
Rate of Return
Street Retail Park, Street
Newly built retail park with three occupiers Home Bargains; Pets at Home and Iceland Food Warehouse all on long leases
TK Maxx, Worcester
5 storey large retail unit in prime city centre location currently occupied by one of Britain's leading retailers with 7 years to run on the lease
Apple Green Garage, Bristol
This site currently provides both fuel sales and a convenience store. In future, as demand changes, there may well be opportunities for new uses for this well located site in a vibrant area of Bristol.
Howmet, 1 Falcon Road, Sowton, Exeter
Circa 50,000ft2 industrial unit occupied by an America own Engineering Company
600-650 Aztec West, Bristol
Two recently refurbished office blocks let on leases with 9 and 8 years to run in prime office location with good access to the M5
|March 2020||NCP Car Park, Richmond Hill, Bournemouth||£5,020,000||5.85%||231 space multi storey City centre car park 16 years lease unexpired until 28/03/37|
|December 2020||The Leggar and Clink Retail Parks, Bridgwater||£9,650,000||7.4%||2 adjacent retail parks accommodating 5 different retailers all on long leases|
Why aren't you spending this money in Sedgemoor?
The commercialism team, advised by commercial property experts, Montagu Evans, look in detail at the commercial market; what is available and the predicted rate of return. As yet, there have been no suitable commercial investments which would deliver a sufficient rate of return for Sedgemoor District Council to invest within its boundaries.
Purchases of this type are not "spending" they are investments. These investments are specifically to generate income. So the investment is made where the return (income) is greatest.
Another way in which SDC can generate money is by lending money for projects that have benefits to the regeneration of the area and the wider community.
All monies lent go through a rigorous 'due diligence' exercise, this means thorough financial and legal background checks and detailed investigations prior to signing a loan agreement. The aim of due diligence is to identify any potential problems or unexpected liabilities and mitigate any risks.
A commercial loan is money lent to an organisation with a payback period and like any other loan from any organisation has interest payable upon the loan. The council will get the original sum back over the payback period, plus the interest, higher than Sedgemoor borrow at, hence the income generation.
The council will also lend money to its subsidiaries at a commercial rate.
Like in any domestic loan or mortgage, the Council secures any loan against the property, so that if the money is not paid back, the council has security. The rates of interest are negotiated on a case by case basis, taking into account any factors such as regeneration potential for the area; community interest etc. But they are always at a commercial rate to ensure the return is higher than the borrowing cost to Sedgemoor District Council.
Any decision to make a loan goes through the due diligence tests, before being debated by Full Council, who are elected by residents to make these sorts of decisions on the behalf of the electorate. Within the due diligence tests is confidential and commercially sensitive information about the organisation asking for the loan, so that is why details are not make public. The councillors then debate the pros and cons of providing a loan and come to a democratic decision.
If a decision to go ahead with a loan is made and the documentation finalised, a legal charge will be registered at the land registry and available to the public to see.
Amounts loaned £
Average rate earned