Agenda item

The Strategic Director City Development & Neighbourhood Services, and the Director of Estates & Building Services submit a report to the Overview Select Committee for noting on the purchase of investment property through the use of investment property funding.

The Strategic Director, City Development and Neighbourhood Services, and the Director of Estates and Building Services, submitted a report to the Committee for noting on the purchase of investment property through the use of investment property funding.

The City Mayor introduced the report. He informed the meeting the Council was in the process of investing £10million from the capital programme in a corporate estate acquisition, namely the Haymarket Shopping Centre.

It was noted the Council had invested in the corporate estate over generations in ways that brought income into the revenue budget of the Council, and in ways that had the added benefit of promoting the economic wellbeing of the city. The corporate estate was already valued at over £100million and produced a contribution towards the Council’s revenue of over £7million a year.  It was at the heart of the investment in the Haymarket which was good value in terms of previous selling prices, with two major revenue benefits, namely, the rent from the properties, and because the Council was paying significant rent car park, the Haymarket theatre and the sexual health clinic.

Richard Sword, Strategic Director, City Development and Neighbourhood Services, made the following key points in addressing the committee:

·         The Haymarket Shopping Centre sat on a four-acre site in the city centre. The Council had bought the complete unit and freehold at £9.5million, and this was a unique acquisition.

·         The Council contributed 19% of all revenue to the site.

·         One of the main leases was the 450-space car park which produced £2.586million of revenue per annum, with a net income of £1.443million.

·         The Haymarket had guilt leases which guaranteed income for the lifetime of a tenancy. Guilt leases were usually with government clients, and there was no exercise break of that lease. The lease on the car park alone was worth £8.4million. With gearing, it was estimated that this could reach about £9.2-£9.6million.

·         The centre had considerable tenants, such as, Greggs, B&M, Holland and Barrett, and Tesco Express.

·         When the Council looked to undertake capital acquisitions, a number of aspects were looked at. One was to examine the strategic fit with the asset.

·         There were also other footway and highway works in the area, as well as the strategic regeneration of the site long term, alongside the Travel Lodge development. 

·         The Centre was a good strategic fit which produced good income, which in turn projected frontline services and brought income into the Council using capital resources to create revenue which the Council was struggling with in the face of Government cuts.

·         Extensive due diligence was undertaken on the property, with extensive comparison and a close look at long term liabilities.

Members were then given the opportunity to make comments, and questions were responded to:

·         Noted were problems with retail, with units empty in shopping centres, with Highcross converting the old Debenhams are into residential accommodation.

·         Noted was section 4.4.1 in the report, where rent arrears were currently at £673k and service charge arrears of £251k.

·         It was questioned if the transaction was such a good opportunity why had it not been sold to someone else before, and if there was money to be made, why hadn’t the previous owners filled the units.

·         With the level of rent arrears, people were defaulting, which would leave the rent arrears for the empty premises being paid by the landlord.

·         There had been little transparency in the decision and a high profile £10million expenditure should not be conducted in that manner.

·         The Haymarket had only been owned for one month and the level of required upgrades was questioned. 

·         There were a number of restrictive covenants, most notably restricting the use to retail with associated office or residential accommodation above. It was asked who owned the restrictive covenant, and how much would the Council have to pay to reverse it should it decide to do something different with the centre.

·         Concern was expressed that to make the transaction work, the Council would have to invest more money.

·         It was noted there was some type of cladding on the elevation facing Belgrave Gate. It was confirmed it was checked and found not to be ACM material cladding. A structural survey would be undertaken before purchase, with vendors reports and own assessments done.

The City Mayor spoke and said that, the site was currently trading well and formed part of an important offer for the city.  He stated that the money the Council had invested was already being returned and was working well economically. He added he was very pleased able to acquire the centre.

A discussion took place between Members and it was suggested that shops were busier outside of the Haymarket. However, it was pointed out that one of the biggest online retailers (Amazon) was banning visa payments, and this would lead people to return back to shops. A Member noted that purchases made online were often of poor quality and people were using shops because they wanted to see the quality of the goods before purchasing.

Matt Wallace, Director Estates and Building Services, reported that 20% of the asset was not retail. It was noted the Council had data intel that showed footfall in the Haymarket Centre was strong and increasing each month, and weekly basket shoppers had continued to shop in the Haymarket. The intelligence was also underpinned by global retail experts Cushman and Wakefield, who suggested that the type of centre such as the Haymarket was experiencing a renaissance and served a certain demographic of the community who would continue to come into the town centre to do weekly basket shops.

The Strategic Director added it was unfair to compare the centre with Broadmarsh in Nottingham as that the latter had used a failed contractor. It was further noted the Haymarket was positioned next to the bus station which naturally drove footfall. He added finally an original point was the asset would pay for itself purchased with public money. 

A Member said the city was fortunate to have the shopping centre, which was also a social meeting point to meet friends, which provided many different types of shops and was welcoming and generally bustling. He added that to acquire the property for just under £10million and from day one would recuperate the investment was not a situation that would make a loss, and the money would provide vital services for the city of Leicester. He said the challenge was to bring the Haymarket Theatre back to its former glory to be used and enjoyed by the people of Leicester.

A Member noted at 5.2.1 in the report the market rent valuation at £2,366,673 and asked what profit would be gained per annum. The Strategic Director reported it would be circa £1.1million net revenue.

The City Mayor said the services the centre provided, such as coffee shops, or Timpsons could not be provided online. He added that he was pleased that many members could see the benefits for the Council and for the City.

The Chair said the acquisition was an important strategic purchase and that he could see the importance of development over the years.

The Chair said the Committee was asked to note the report and recommended that the Committee support the strategic investment for the city. This was SECONDED by Councillor Joel.

Councillor Kitterick asked that his vote against supporting the acquisition of the Haymarket Centre be noted.

The Chair asked that all votes, therefore, be recorded for and against, and the results were as follows:

Councillors Cassidy, Gee, Halford, Joel, Joshi and Thalukdar voted IN SUPPORT of the acquisition.

Councillors Kitterick voted AGAINST the decision.

AGREED:

1.    That the report be noted.

2.    The Overview Select Committee were in the majority in favour of the acquisition of the Haymarket Centre.