Revealed: Council bought £90m of properties in four-month spending spree
- Credit: Archant
Newham Council splurged £91.5m on five properties hundreds of miles away in a series of back-room decisions last year, an investigation has found.
Between August and December 2017 the local authority bought a string of office, retail and distribution sites from Surrey to West Yorkshire.
The council has recently been rapped by its own external auditor over the arrangements, none of which were made public or scrutinised by the full cabinet.
Research by the Bureau of Investigative Journalism has found this is part of a wider trend in England, where the number of local authorities “gambling” on the property market to support flagging income has risen sharply in 2017/18.
But Newham spent by far the most of any local authority in London, and the seventh most in England – without making taxpayers aware.
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In their annual report to the council dated November 9, auditors from Ernst & Young raised concerns about the practice a full year after the £91.5m was spent.
Ernst & Young flagged up the council’s valuation of its investment properties as a “serious risk”, adding that they were not yet “comfortable” that the given values were correct.
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They said: “Five investments totalling £90 million were made under the delegated authority for decision-making and as such were not reviewed by full cabinet.
“Whilst we have not identified any significant issues with the governance arrangements, the council should consider whether delegated authority for such decisions is appropriate.”
The acquisitions were discussed on various occasions during mayoral proceedings last year under the previous mayor, Sir Robin Wales.
In all cases press and public were excluded. The final sign-offs for at least four of the buys were delegated to the then-assistant chief executive, who took the decisions behind closed doors between July and November.
There is no record of when the fifth and most expensive property was dealt with, but part of it was ostensibly leased to a govenment department the following month.
The five properties are:
Saint Paul House, Redhill, Surrey: Bought on August 25, 2017 for £26,377,811
A four-storey, 51,333 sq ft office building that had received a Grade A refurbishment earlier in the year.
It is home to Travellers Insurance UK and car insurer PSA Finance UK Ltd, amongst others.
While it is not clear how much Newham will recoup from any of its investment properties, last year the rates payable were believed to be around £7.46 per sq ft.
Lease of the property was discussed privately at mayoral proceedings on September 7, 2017. Eight hours earlier on the same day, officers had rubber-stamped a £19.7m deal to buy another office block in the West Midlands.
At the meeting, minutes state the mayor considered plans to lease the ground floor south wing of the property to “a government department” for a term of 10 years with a five-year break.
The authority used its powers of general exception to push the decision through quickly and without a 28-day notice period.
The minutes state: “The Mayor agreed to consider this as an urgent item on the grounds that determination of a new lease could not wait until the next meeting of Mayoral Proceedings without risking the deal falling through.”
At the moment that part of the building is occupied by a cabling and telecoms firm.
Samuel Ryder House, Nuneaton, West Midlands: Bought on August 9, 2017 for £19,782,336
This is the UK headquarters of health food giant Holland & Barrett, which this year was expanded to add a further 48,000 sq ft of space to the premises.
It houses 500 staff members and regeneration efforts have taken place piecemeal over four decades.
Holland & Barrett made £655.5m in sales that financial year, a rise of 7.1 per cent on the year before, although profit before tax fell from £114.6m to £72.5m.
The property was bought by Newham within a month of it being announced that Holland & Barrett was to be bought by L1 Capital, an investment fund owned by a Russian oil billionaire.
The deal was approved at Newham’s end at 8.30am on Thursday, September 7.
Yodel parcel hub, Wednesbury, West Midlands: Bought on September 6, 2017 for £18,892,721
A sprawling 153,481 sq ft complex formerly owned by courier service City Link. It comprises distribution warehouse space, offices, a vehicle maintenance unit, a workshop and a store on two sites on the Black Country Route.
It is thought to be the largest facility of its kind in the West Midlands and was bought by a private investor on behalf of City Link in 2010.
Yodel Logistics has been operating at a loss for some time and reported a loss of £84.203m for the last financial year, compared to a loss of £59.314m the year before, contributed to by unprecedented demand on Black Friday and Cyber Monday.
This deal was signed off at 8.30am on Wednesday, September 6.
Quora Retail Park, Skegness, Lincolnshire: Bought on December 12, 2017 for £16,051,646
This leisure and retail park was a brand new build on the old site of Skegness Town Football Ground. Work on the 70,000sq ft site had completed earlier in 2017.
The current tenants include M&S, Aldi and B&M, as well as a gastropub. Another retail giant, Pets at Home, had been set to take up a unit in May this year but pulled out at the eleventh hour, stating: “Both the retail environment and the property market can be volatile.”
This purchase was given the green light by Newham officers at 4pm on Thursday, November 30.
Land on Wakefield Road, Featherstone, Yorkshire: Bought on August 25, 2017 for £10,366,833
This tract of land is on the road between Pontefract and Wakefield, just south of Leeds, and is home to several packaging and trucking companies as well as Featherstone Lions FC.
It is not clear which section of the road was bought by Newham, but an acquisition described as ‘North Eastern Retail Site’ was signed off at 9.30am on Friday, July 14.
It is understood that the site has since been developed.
Exactly how much income these five sites could be generating for Newham is not clear, but the council said they would be providing “a significant annual return”.
The local authority did not confirm who the properties were bought from, citing commercial sensitivity.
When pressed on if each purchase had been discussed or decided on in public, a spokesperson said only that the council’s investment strategy was in the public domain.
They said: “Investments into these five sites were made with a view to generate a long-term and stable revenue stream for the council. This revenue is used to fund important council services for residents of the borough.
“All five sites are currently occupied and bring a significant annual return into the council.
“This investment strategy was decided upon during a publically held meeting, allowing the council to generate income through commercial investments.”
The national picture
The number of local authorities in England buying investment properties - land or buildings bought to generate income - has doubled in the last two years, research by The Bureau of Investigative Journalism has found.
Councils have spent billions on commercial property and land - from supermarkets and hotels to shopping centres and business parks - in an attempt to bring in extra revenue to help balance their books in the face of government cuts.
The amount spent on these investment properties has risen sharply, from £76.4 million in 2014/15 to £1.4 billion in 2017/18.
Councils have already handed over £339.7 million in the first quarter of 2018/19, more than twice as much as the £153.3 million spent in the first quarter of 2017/18.
The number of councils playing the property market with investment properties doubled in the last two years, from 35 councils in 2015/16 to 71 in 2017/18.
Some of the purchases - the details of which are often shrouded in secrecy - are hundreds of miles away from the area they represent.
The practice has attracted controversy outside the sector, with Liberal Democrat leader Sir Vince Cable suggesting last year that councils were ‘gambling’ with public money.
A spokesperson for the Local Government Association (LGA) said: “The money local government has to pay for local services is running out fast and there is a real and growing uncertainty about how local services are going to be funded beyond 2020.
“With councils facing an overall funding gap that will reach £7.8 billion by 2025, they have had to look for new ways to generate revenue. Councils have been encouraged to find ways of protecting services by generating income from alternative sources.”