Croydon Council buys a shopping center!!!

jonnygee2

http://www.newslocker.com/en-uk/region/hammersmith-and-fulham/croydon-council-spends-53-million-on-retail-park/view/

Congratulations, UK taxpayers! You now own Colonnades Retail Park in Purley!!!

This seemingly small bit of news holds a very interesting case study.

In a move unknown to many, some time ago central government made a load of very cheap debt available to Local Council to invest in property. Bear in mind this has nothing to do with provision of services - these are purely investment portfolios.

So suddenly a load of under-qualified asset managers have £100 million to spend. Caught somewhere in between their general desire to serve their community and their instant need to make a quick buck, many have started buying up considerable amounts of retail property in their own districts (although some are just buying property on the other side of the country!).

This is a great example. Croydon have bought a retail park, with central government money, for £53. It makes a pitiful 2% yield producing just £1.4m 'after costs' (which I assume includes the interest rates on the loans, which I hear are about 1%).

The obvious problem is that a) the yields take almost no account of risk (2%!!! That's barely higher than a UK government bond - obviously theres more risk in in commercial property!!!) and also, due to the short term thinking of local councils, no one has really given a thought as to what happens if it all goes tits up.

Who is going to fund the shortfall if retail outlets close and rents dry up? And if retail approach them for rent reductions or CVAs, the council are going to be torn between being accused of using taxpayer money to subsidise business, or being accused of putting local people out of jobs.

Just to be clear - this isn't an isolated case. Councils are doing this up and down the country, propping up retail property prices as they go.

The only people this is really good for is all the retail investment firms who have been trying to 'reduce risk' (sell everything!) but until now couldn't find anyone to buy retail outlets in the UK.

You heard it hear first :j I'd be expecting to hear a lot, lot more about this in a few years time as the first council owned investments turn into loss making enterprises and people start wondering where their council tax is going....

zagubov

Is that related to what's covered in this bbc article?

MiserlyMartin

If local government are buying shopping centres then you know its about to go tits up

AlanP_2

Central Government through austerity regime and severe cutting of local government budgets, which is an easier option than managing and cutting their own spending, along with local objections to paying more for services leads to alternative, and riskier options being looked at and sometimes implemented.

If all Croydon residents offered to pay a couple of hundred quid extra each year then they could probably sell it as wouldn't need the extra income but that is never going to happen.

Commercialism is the current agenda for local authorities as they need to replace central government funding with alternatives quickly.

diggingdude

They have bought a small one near me. I can see them changing it into flats in the future