TRAFFORD COUNCIL Report to:Executive Date: 10 March 2008 Report for: DecisionReport of: Executive Member for Strategic Planning, Property and Prosperity

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TRAFFORD COUNCIL

Report to:



Executive

Date:




10
th

March
2008

Report for:



Decision

Report of:

Executive Member for Strategic Planning,
Property and Prosperity


Report Title



Disposal of assets within the Asset Management Investment Portfolio




Su
mmary



A report detailing progress made on Project 9c, Let Estate, to date, and seeking
authority to progress to the implementation stage. This will involve the disposal
of a number of properties leased by the Council to commercial tenants in order
to rai
se a capital receipt for reinvestment and produce the required savings
prior to the Project end date of 31
st

March 2010.



Recommendation(s)



1.

that the proposed Schedule of Properties to be sold is approved and amendments
to the proposed programme be dele
gated to the Head of Asset Management in
consultation with the Executive Member for Strategic Planning, Property and
Prosperity

2.

that the
Head of Asset Management

proceed with the disposals

as soon as
practicable

3.

it be agreed that

the sale of residential
Ground Rents are not firstly offered to
house owners in the interests of operational efficiency

4.

that the proposed timetable
and progress of

disposals be
monitored by the SIP

Theme
4
Board

5.

That the Head of Asset Management and Director of Finance be reques
ted to report
back on a proposed reinvestment strategy in due course






Contact person for access to background papers and further information:


Name:


Dave Challis



Extension:

4227




Background papers: none





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1.

Background

and progress to date

under S
tage 1


1.1

Theme 4 of the corporate Service Improvement Programme is about property
management. This includes looking at how the Council delivers property
services across all services; the establishment of a corporate property
database; savings on accommodati
on held on short term agreements; energy
savings; business rates; and the management arrangements for Waterside
Arts Centre. This report considers progress made on the remaining area: the
improvement of rental income and efficiency of managing the
Council’
s
portfolio of non
-
operational properties held for investment purposes, known
as the Let Estate.


1.2

The P
roject
I
nitiation
D
ocument

(PID)
for this Project was approved in August
2007
by the Theme Board
and significant progress has been made on
drawing togeth
er a list of properties which may be sold and the capital
subsequently reinvested in association with the Council’s Consultants,
Storeys:ssp.

A
ssumptions and risks have been tested and it is now possible
to
fix

the final list of potential disposals to meet

the target set in the Outline
Business Case of £7.5million

over the life of the Project

(to March 2010)
.

The
basic premise of the Project is to reinvest this sum to produce
savings of

£
225
,000 per annum from the
2
0
09/10

financial year onwards

over current

income

produced from these properties
.

This figure is made up of additional
rent income (£115,000 p.a.)

plus efficiency savings

(£110,000 p.a.)
.


1.3

A full and detailed End Stage Plan was examined and approved by the Officer
Theme Board on the 14
th

December
and
the Theme 4 Member Board have
also approved the report
.


1.4

During the course of the Project

it should be noted


-

project aims have been clarified and critical success factors
understood by the project members

-

financial and non
-
financial benefits have been

identified

-

stakeholders identified and an initial assessment of communication
requirements completed

-

risks examined further following the initial PID, further risks have been
identified, but in all cases no risks have increased and most of them
have reduc
ed as the business cases has been developed and base
information gathered.


1.5

Storeys have compiled a list of potential properties which may be disposed of.
These are properties held in the Asset Management Investment Portfolio and
are principally held for i
ncome purposes only
.
Members are asked to note that
the Government has recommended that
all
Councils review their Tenanted
Non
-
Residential Property (TNRP) to ensure that only those required for
regeneration or for operational purposes are retained in the l
ong term
(“operational” could include for example land in the Green Belt to protect the
urban fringe from development

but let for horse grazing
).


Property Disposal


1.6

The proposed

list

of properties to be sold

is attached as an Appendix. Some
tenants have a
lready expressed an interest in purchasing their freeholds and
discussion on terms is ongoing pending Members decision on the overall list.
There is a good prospect of a significant
minority

of the receipt target being
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achieved within the next

few

months w
ith sales to existing tenants who have
expressed interest.

The estimated capital receipts are not itemised

here

for
commercial reasons, but the

maximum

total

capital sum identified is £
8.42m
.



1.7

Members are asked to note in particular that the list includes

pro
perties in the
Historic Market Q
uarter

(HMQ)

of Altrincham, and some areas of parking in
Altrincham.
The recommendation from Theme 4 Board Members was to hold
back properties in the HMQ due to their location near Altrincham Market while
the effect of t
own centre improvements and resource implications are
considered further
.


1.8

Members are asked to agree that the residential ground rents (
the vast
majority £25.00 a year



of which there are over 1,000
) are not firstly offered
to house owners in the interes
ts of operational efficiency, in the light of
experience from other Authorities in the North West who have pursued this
only to find the exercise was very time
-
consuming and not cost
-
effective.

Part
of the exercise is to reduce the number of interests held

on the corporate
database and the majority of work with these rents is of very
minor

administrative changes which are not cost
-
effective.


1.9


It should be noted that some sales of these rents by other Authorities have
led to investment Companies requiring t
enants to insure with them and also
dealing aggressively with retrospective consents. However, the Council’s
advisers will give advice on how this can be prevented in the case of
Trafford’s disposal programme, ensuring that guarantees are incorporated in
t
he conveyance

as far as is possible and that reputable firms are invited to bid
for the portfolio of rents.


Financial impact


1.10

During the Service Improvement process it has been recommended that in
order to reduce the impact on the

revenue

budget that the
interest from the
capital invested be directed back to the Investment portfolio.

Calculations
produced by Storeys show that the retention of interest during the disposal
programme will balance the loss of rental from the Investment Portfolio and
so the exe
rcise is low risk financially.


1.11

The
reduction in the number of management
-
intensive properties will

-

release staff to focus on
strategic asset management;

identification of income
opportunities from the retained estate
;

better management of arrears;

a
re
duced requirement for expenditure on

non
-
operational

premises
; and

an

improved quality of service to Council Directorates.

This efficiency gain is
estimated to be £110,000 p.a. each year from
2009/10

forward
s
.



1.12

This efficiency gain, combined with the incr
eased rental expected from
reinvesting the capital receipts in an alternative property, make up the
overall
saving of £225,000 per annum stated in the business case.









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2.

Next steps



Stage 2


2.1

These were fully set out in the
reports to the Theme 4 Board
.



The next steps will include:


-

further advice from Storeys

and discussion with the Director of
Finance regarding reinvestment of the capital sum produced during
the Project period (
received
substantially during 2008/9). The sum
must be reinvested (i.e.
an alternative investment purchased and
producing income) no later than March 20
09

to
maximise savings in
2009/10
. Market conditions will be
critical

to this decision.

Purchase to
be made as a balance of regeneration / investment income

objectives.


-

dispos
al of interests



these will be done by Storeys at an agreed
fee which will be paid out of the receipt
, as will any legal costs to be
borne by the Council
.


-

drafting a revised Let Estate Strategy

for the period 2008
-
2015
which will deal with the managemen
t of the retained Estate, set
performance measures and fully embrace the principles of the review
of Tenanted Non
-
Residential Property in order to assist in achieving a
high score under the 2008 CPA and for CAA from 2009 onwards.



Financial Impact:


Outl
ine Business Case is for £7.5m worth of
investment property to be sold and reinvested
(a
higher figure has been identified for flexibility)
to
produce additional
rent of
£
115
k in a full year from
2009/10

onwards
, plus efficiency savings making a
total of £
225k p.a
.

Alternative investment may be
purchased using prudential borrowing.

It is expected
that the temporary loss of income from leases will be

largely

met by interest received on the capital receipts
held on deposit until reinvested in alternative
prop
erties.


Gershon Efficiency Savings:

May qualify as additional income to be produced
without additional resources required.


Legal Impact:

Sale of

various land interests on terms to be
determined
. Some properties may be subject to
auction. Reduction in n
umber of properties for which
the Council will have a legal obligation as landlord.


Human Resources Impact:

To be implemented within existing resources and
additional resources from the Service Improvement
Programme.

The Director of Legal and Democratic
Services will require external resources to deal with
the Conveyancing of the Residential Ground Lease
interests and the cost of this can be met by the
Purchasers.



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Asset Management Impact:

Reduction in the number of properties held within the
Asset Mana
gement Investment Portfolio,
administrative costs, and requirement to repair
properties where leases so oblige.

New property interest should be acquired on the basis
that it is
easier to manage and will have longer term
income potential. Reduction in back
log maintenance
associated with Council obligations as Landlord of
those properties on the Schedule.

Savings estimated
at £110k in a full year through efficiency savings.

Loss of rental income starting in 2008/9 will adversely
affect local performance indi
cators during the year but
will improve once new investment acquired.


E
-
Government Impact:

None


Risk Management Impact:

Main risk is the general performance of the property
market

in 2008/9

and the disposal programme will be
adjusted to suit conditions
. Risks associated with the
ownership
and management
of property will be
reduced as an outcome of the disposal programme.


Health and Safety Impact:

No implications





Other Options




The
Business Case

investigated other options and concluded that exist
ing
portfolio could not produce step
-
change in income required to produce required
level of increases by rent reviews and new leases alone and that wholesale
change to the make
-
up of the portfolio is required.



Options for reinvesting the sum produced to be

considered by the Theme Board



Do nothing option would not produce extra income from the portfolio and not
release staff time for other property
-
related work



Consultation


Consultation not

legally required for leased properties and in the interests of
op
erational efficiency

it is not cost effective to give all tenants prior notice of disposal,
except where the tenant constitutes a special purchaser and the expected receipt is
substantial.



Reasons for Recommendation
s




To
progress the approve
d

Business Ca
se



To ensure the disposal process
proceeds effectively





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Key Decision



This is a key decision currently on the Forward Plan:
Yes

/
No





Finance Officer Clearance

GB
/ JR

Legal Officer Clearance

BD










DIRECTOR’S

SIGNA
TURE





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SCHEDULE OF PROPERTIES TO BE SOLD

Address

Town

Property Type

& comments

Programmed for Sale
(provisional)


Ground Rent Investments

(i.e. land owned by the Council,
buildings owned by the Lessees)






Site of Units 1
-
7, Britannia
Road

Sale

Industrial

Ground lease

2007/2008

Clarke
Industrial
Estate, Barton
Dock Road

Trafford Park

Industrial

Ground Lease

2007/2008

Ongoing negotiations where special purchaser identified

Ocean Street
Industrial
Estate, Atlantic
Street

Broadheath

Industrial

Gr
ound lease



mainly occupied by Cartwrights

2007/2008

355 Chester
Road & 16
Cornbrook Park
Road

Old Trafford

Industrial

ground lease


some possible

future development potential

2007/2008

Land at Virgil
Street

Old Trafford

Car park



near to Chester Ro
ad.

Lessee’s building To Let.

2007/
200
8

Part San Rocco
Restaurant,
Crown
Passages, rear
of Ashley Road


H
ale

town centre

Restaurant premises


kitchen area only

2008/9


(tenant enquiry received)

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Residential Ground rent portfolio

Residential
Ground Rent

Portfolio

(ex
HRA houses)

Borough wide

Residential

Ground rent only

2008/9

Commercial Ground Rent portfolio

Site @ Borough
Road/2 Mayors
Road

Altrincham

Car Park

available for public use off peak

Subject to determination

with Parking Services

Cherry C
ourt,
2&4 Roebuck
Lane

Sale

Residential

Ground Lease

Let to RSL

2008/9

Parker's Garden
Centre,
Carrington Road

Flixton

Garden Centre



some

Poss. development potential

2008/9

Land at
Woodhouse
Road

Davyhulme

Garden Centre



little

Development potential

2008/9

58
-
66 Borough
Road

Altrincham

Industrial

Subject to determination

with Parking Services

Manor Garages,
24
-
42 Wharf
Road

Broadheath

Industrial

land


review of holdings to be

made locally before confirming inclusion

(opposite Wharf Road Depot)

2
008/9

Land at Sea
Hawk Pub, Bold
Street/Dudley
Close

Old Trafford

Ground lease of pub

Some possible development

potential in the area

2008/9

Site of 439/463
Stretford Road
& 2/43
Hamilton Street

Old Trafford

Residential



lease

To RSL

2008/9

Lacy
Stre
et/Newton
Street

Stretford

Probation

Office

2008/9

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Land between
13&19 Mayors
Road

Altrincham

Miscellaneous

2008/9

Rear of
Glebelands
Road/Finnybank
Road


Sale

Nursery land

2008/9

Land to rear of
9
-
15 Edge Lane

Stretford

Car Park

adj. Listed Building

20
08/9

Site A, Skelton
Road off
Deansgate


Timperley

Industrial

land

2008/9


(tenant enquiry received)

Site B, Skelton
Road off
Deansgate

Timperley

Industrial

land

2008/9


(tenant enquiry received)

Site C, Skelton
Road off
Deansgate

Timperley

Industrial

l
and

2008/9


(tenant enquiry received)

Car Parks at
Central Way


(incl.
Consultants car
park for
Altrincham
General)

Altrincham

Car Park



discuss with PCT

Prior to inclusion on list

2008/9

Warburton
Service Station,
Moss Lane

Hale

Land used for

Filling

Station and car sales

2008/9

Land &
Premises at
Moss Lane



Hale

Land used for

Car Showroom

2008/9

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Rented Premises

(i.e. buildings where Council has a
repairing obligation)







209/211 Ashley
Road


H
ale


Office

2008/2009

14/22 Plymouth
Road & 54
S
idmouth Road

Ashton
-
on
-
Mersey

Retail Parade

2008/2009

52/54
Greenwood
Street


Altrincham

Historic Market Quarter

Shops

2009/10

12/20a Shaws
Road


Altrincham

Historic Market Quarter

Retail Parade

2009/10

81/97 School
Road

Sale

Retail Parade

2009/10

38/
38a
Greenwood
Street


Altrincham

Historic Market Quarter

GF shop

FF office

2009/10


9a

9c

Crofts
Bank Road

Urmston Shopping Centre

Shop
s

2009/10

9d Crofts Bank
Road


currently CAB
office

Urmston Shopping Centre

FF
Office

2009/10