South Somerset District Council continues to secure its future with significant investments (2)
A further significant investment has been secured to ensure that South Somerset District Council (SSDC) can continue to fund important services and key projects for its communities
SSDC has acquired Bell House in Milton Keynes for £2.925M reflecting a net initial yield of 7.27%, with the legal assistance of TLT Solicitors of Bristol.
It has been added to SSDC’s growing portfolio as part of its commercial strategy which is helping to mitigate a reduction in central Government funding and ensure SSDC generates income to protect the wide range of services our communities receive and create opportunities to fund new projects.
How does the council pay for these deals?
Broadly, the investments are funded from reserves and internal borrowing. It’s complex but, put simply, it means SSDC is borrowing from itself and charging itself interest.
This means that money that was previously in bank accounts is generating a higher rate of return with the proceeds used to protect services and deliver important projects in South Somerset. It does not involve investing money that would have been spent on services.
Details of the deal
The property comprises 10,695 square feet of Grade A office accommodation constructed in 2007 over four floors. It is let to four tenants, including regional solicitors Howes Percival LLP, and situated in a modern business park environment half a mile from Milton Keynes Central station.
The property is considered to be marginally underlet, with prime rents in the town rising to £27.50 per square foot, providing room for reversionary uplift.
There is also substantial infrastructural investment ongoing in the area between Oxford and Cambridge, improving road and rail connections between the cities, which is likely to result in further increases in rents over the coming years. The purchase cost of £2.925M represented a considerable reduction on the asking price.
The Council’s portfolio holder for economic development and commercial strategy John Clark said: “The attraction of the property lies in its multi-let nature, which allows us to mitigate the risk of letting voids, while benefiting from capital and rental growth that infrastructural spending in the area typically brings to the existing market.
“We are proud to be investing – not spending – to maximise income to the council, that is reinvested in our local services and communities.”
Why is South Somerset District Council becoming more commercial?
The Council is currently operating in a complex financial climate where it needs to deliver savings rising to £6 million per year until 2022. This is in addition to having to cut its costs substantially since 2010.
SSDC has sustained a 70 per cent reduction in its Government grant funding since 2010 and further reductions are likely in the future whilst demand for and costs of many services continues to rise. It became clear that SSDC needed to make the most out of its assets and look for new opportunities which could generate income to protect the wide range of services our communities receive and create opportunities to fund new projects.
It has seen the Commercial Services and Income Generation team given an ongoing annual income target of £2.25m for commercial investment income and great progress is being made.
This is about making prudent financial decisions which will create significant income to get the best results for South Somerset but still, where possible, supporting the local economy.
In the future, we will have countered the loss of grant funding from Central Government though sensible investment and we will continue to deliver vital services, parks and open spaces as well as exploring new opportunities to make South Somerset an outstanding place to live, play and work.
How does the council decide on where it invests?
Every decision that is made is being rigorously tested and checked. The Commercial Property Team is working to ensure that SSDC does not overpay for property due to the lack of supply, and is not exposed to undue risk, for example within the retail sector, where significant changes are currently occurring nationally.
A huge and diverse range of opportunities have been considered and rejected in the past year from a car showroom in Newcastle to an industrial estate in Poole.
Reasons for rejection can include the asking price not matching our valuation, unacceptable risk to income, non-compliance with our commercial aims and objectives, and over-exposure to a particular market.
SSDC is investing in a diverse range of locations and asset types to ensure that it spreads any risks attached to investments which reflects sound investment practice.
This includes assessing whether an investment outside the district will deliver a better rate of return for our communities than a similar opportunity in South Somerset.