City council set to establish property investment company
Birmingham City Council is proposing to create a new property investment body to generate additional capital receipts for the local authority.
The new body, which would be a wholly-owned company (WOC) within the council’s control, would deliver a commercial property investment strategy involving the acquisition, leasing and disposal of properties to generate revenue for the council.
The move is similar to one adopted by a number of other local authorities as they look to claw back revenue and ease the pressure on tight budgets.
The move is being considered by the council as part of its strategy to commercialise certain operations so it can capitalise on assets.
One of the first steps implemented by the council could be the transfer to the WOC of the Crowne Plaza and Hilton Metropole hotels at the NEC. Both properties are currently on the market.
The proposal is set to be ratified at a meeting of the city council’s cabinet on June 27.
The report to the meeting states that the introduction of the special purpose vehicle is considered to be the best value for money option available to the council as it looks to achieve its desired capital receipts.
The confidential aspect of the report sets out the business case for disposing of property assets to the wholly-owned company. The intention is that net proceeds from the disposal of assets will contribute to the council’s aims of achieving tough budget targets.
The report states: “The development of a commercial investment strategy, if approved and applied, are anticipated to generate the council a sustainable and increasing revenue stream and will require the council to utilise prudential borrowing to fund further investments.”
The capital receipts expected from the sale of properties was factored into the council’s 2017 financial plan, but if they are not realised then the council will be left with a hole in its budget plans – creating “potentially significant revenue budget pressure” for 2017/18.
The report concludes: “The development of a commercial property WOC will give the council a new option for the management of its commercial property portfolio which can be used where this provides best value to the council.
“Not to create a WOC would mean the city would miss out on the opportunity to benefit from the capital receipts and retention of assets.”
In implementing the plan, the council has sought specialist taxation and structural advice from PwC.
