One of the most read stories on Hastings In Focus this week has been the threat of closure that is once again hanging over Debenhams. It’s a sign of the times and a sign of the uncertain future for high street retailers across the country.
In recent years your council – Hastings Borough Council – has borrowed tens of millions of pounds that it will be repaying for up to 50 years to buy up commercial properties. Three of the council’s four tenants on the Bexhill Road complex; Carpetright, Bensons for Beds and Poundstretcher have recently been through financial turmoil and it’s likely that for the Hastings stores to have survived under each company’s new regime deals will have been done to reduce rents. And in todays uncertain world for retail there are no guarantees that those deals will be enough to ensure the survival of those businesses.
We’ve asked the council how much its tenants are in arrears with rent but it refuses to tell us but lost rental income since March is thought to be getting on for £400,000.
The risks HBC has taken are huge. Councillor Andy Patmore has always had concerns about the council’s borrowing-fuelled spending spree and about whether or not the council took the proper expert advice before throwing itself so wholeheartedly in to a very specialist and expensive world – here he explains why he’s now very worried indeed.
It wasn’t that long ago that I wrote and explained my reservations about some of the very risky commercial property purchases Hastings Borough Council (HBC) has been making writes Andy Patmore.
It was my belief – actually the belief of many more prominent commentators – that using public money to speculate on the commercial property market was inherently risky and should be left to professional property investors who have the ability to move with, and ride out, markets in bad times.
Commercial property investors take risks, either with their own money, or with the trust of their shareholders. I am not sure that when residents pay their council tax they understand they are shareholders in a commercial property investment company.
It would have been difficult to predict a pandemic or anything like Covid-19 but what could have been predicted is the gradual demise of the retail sector and the slow move to online shopping.
Many people who have been slow to move to an online shopping experience have been forced to embrace online shopping because of the pandemic. According to all current thinking Covid-19 has moved online shopping habits on by five years and this is bad news for the commercial property sector and retail.
Well before the start of Covid-19 many well known high street names were entering in to CVA (Company Voluntary Arrangements) agreements. This is where the business negotiates lower rent so they can continue to operate, save jobs and avoid bankruptcy.
What on earth have these complicated CVAs, online shopping habits and commercial property valuations have to do with getting my bins collected you might say? Everything, is the answer.
YOUR council has borrowed big to gamble tens of millions of pounds to invest in the retail property sector. In its defence, many other local councils around the country have gambled in the same way.
I can only say that I have been consistent in my opposition to this type of investment, especially as the council has not been aggressive enough in their purchase negotiations, basically buying into a commercial property bubble caused by councils up and down the country willing to snap up whatever they could get.
Covid-19 has brought these investment decisions in to sharp focus and the problems faced by the retail sector have been brought forward by a number of years.
The pressure on rents and commercial property valuations is downward and the margins at which the council is operating are thin at best. Latest indications show the council has lost rental income of some £387,000 since the end of March, wiping out much of any profits.
This is the second largest loss due to Covid-19 on the council’s balance sheet. With the sadly impending financial fallout of Covid-19 those figures are highly disturbing, especially as the council has borrowed at 100 per cent loan to value and over periods of 40 years.
Councils are not commercial organisations and should never have got involved in these investments. A council’s basic function should be to provide services to their citizens not speculate on the markets. I fear these ‘investments’ will become the next financial scandal.
In fact, worse still, the council’s margins on their borrowing to rental income are so tight that it might not be able to reduce rents when asked – if they are asked – to negotiate future CVA agreements. This inflexibility might force businesses in to bankruptcy, ultimately losing local people their jobs.
HBC’s ruling Labour group will ultimately blame the government for not giving them enough money and I do have a lot of sympathy with local authorities having to reduce their spending and working on lower budgets. However the choice to borrow huge sums of money and to gamble them on risky investments is solely the decision of the Labour run council.
The Conservatives were the only voice in cabinet who would ask difficult questions in an open, public forum. In fact I remember being specifically criticised for doing so by a Labour councillor. I was ‘told’ the questions I directed at the officers should have been asked of them at behind closed doors briefings.
I felt it was my function as an opposition member of the Cabinet to ask questions in an open forum so the public could hear what the officers of the council had to say.
I respected former council leader Peter Chowney and his choice to continue Jeremy Birch’s decision to have opposition members sit in cabinet, along with his willingness to engage and listen.
Unfortunately all the difficult questions will now be asked behind closed doors as the new Labour leadership has stifled debate.
Councillors can debate decisions taken by cabinet at full council meetings, by way of ‘call back’ but the public won’t have the opportunity to hear from the officials who run HBC because they are not committee style meetings and questioning the officers is not allowed.
Hopefully the Government will come to its senses and outlaw the use of public money to invest in this way, otherwise buckle up for more unscrutinised, behind closed doors, multi-million pound property roulette.