While Local Authorities across the country feel the pinch when it comes to funding, Eastleigh used property management to plug the gap.
In 2011, Hampshire Cricket Club was in trouble. Its ground, the Rose Bowl (now the Ageas Bowl), was losing £900k a year, and there was a risk that the club would go into liquidation. An unlikely saviour was at hand, however: Eastleigh Borough Council stepped in with nearly £40m to buy the ground and build a hotel on the site.
“We could see this wonderful 170-acre site with all these marvellous opportunities, not realising its full potential,” says Nick Tustian, then chief financial officer (CFO) and now CEO of the council. An evaluation suggested the investment could be worth 500 new jobs and bring about £50m worth of direct and indirect economic benefit to the area. In straight financial terms, the purchase – made with borrowed money – has paid off: the council now receives a surplus of more than £2m a year from the ground.
A strong investment
Eastleigh Borough Council began its programme of buying up properties in 2008. Initially, says CEO Nick Tustian, its focus was on purchasing properties that came up for sale in the borough as part of the authority’s regeneration plans for the town centre. “It very quickly came to our attention that property prices were relatively low and that there were some strong rental yields out there,” he says.
Some companies were desperate to make money from property sales, and the favourable borrowing terms offered by the Public Works Loan Board (PWLB) made the purchases a good investment. “We could buy some strategic properties that could help with our regeneration and our employment aspirations.”
The properties bought through loans from the PWLB and inter-authority lending include a Marks and Spencer and an old nightclub that’s now a successful Travelodge hotel. Initially, the net yield was 7% a year; now it’s 4.5%. Altogether, the council has borrowed £200m and is seeing an annual surplus of £9m from its £260m property portfolio, enabling it to keep council tax static in real terms. “Our property income is now worth more than our council tax and business rates combined,” says Tustian.
The programme required the authority to rethink its processes: “We had to change a lot of our bureaucratic rules. For example, we don’t require formal cabinet approval to progress a purchase – the leader and I have delegated powers to do that, so we are quickly in the marketplace. We learnt the biggest thing of all – market intelligence. We started to understand the market we were in, and we started to gain confidence from agents to the point where they were contacting us to say, ‘We’ve got property – are you interested?’”
An investment decision, Tustian says, is never merely about the bottom line – it is always informed by longer-term strategic objectives, such as creating jobs. He stresses the care and planning that goes into each decision. Each property is assessed on “whole life costing, the strength of the covenant, the strength of the lease and potential opportunities for redeveloping the site in the future,” he says. “For every ten we assessed, we probably purchased one.”
Eastleigh has no plans to scale back its property investments. It plans to enter the housing development market, purchasing a £150m plot of land on the outskirts of the town. It will be an “exemplary development,” says Tustian, with a strategic network of roads and cycleways. “We want to be able to demonstrate that we can do all the things that councils want to do in terms of planning by making this sort of development – and we will make a profit as well.”
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