Bournemouth Borough Council has unveiled plans to increase the value of its commercial property holdings from £26.5m to £125m.
The plan passed its first hurdle this week, with the council’s cabinet approving a strategy aimed at generating an annual surplus of 1.5% over the cost of borrowing and after provision for voids and bad debts.
The council says that this could help provide more than 10% of the savings it needs to make by 2019/20 due to reductions in central government grant.
Philip Broadhead, cabinet member with responsibilities for economic growth, said: “Many local authorities have already built up large investment property portfolios to generate additional income to help underpin their financial position.
“In Bournemouth, we have the opportunity to create a portfolio of income generating property assets and replenish our freehold stock for the next generation, which could make a significant contribution to securing the council’s financial position whilst protecting frontline services.”
Like many councils, the authority plans to take advantage of low Public Works Loan Board borrowing rates to assemble a portfolio of commercial property.
A report to the cabinet said that the investment approach would target assets with secure revenue streams and reasonable prospects for capital growth.
It said that “within 10 years of acquisition, increases in the underlying asset values and the cumulative effect of loan repayments will reduce the loan to value ratio to 60% or better.”
The council said it will consider investments in offices, industrial, retail, hotels and hospitality, medical facilities, care homes, and car parks.
But it is also proposing that no more than a quarter of the portfolio will be invested in a single sector.
Broadhead said: “We of course have to be mindful to balance the risk and rewards of any property investments, although it is worth remembering that Bournemouth Council has been managing a significant number of assets for decades with an excellent record.
“Unlike some councils around the country which are taking an aggressive approach to their investment portfolios, quite often putting all their eggs in one basket, we are proposing a more measured strategy, spreading our investments across a range of sectors, with no more than 25% in one sector.”
In most cases, the freehold or long leasehold of new investment assets will be acquired and held in the name of the council, the officer report said.
But is said that some assets may be held in a special purpose vehicle “for legal, financial or risk mitigation reasons”.
Last year Bournemouth council established Seascape Homes and Property as a wholly-owned subsidiary, to develop homes in the private rented sector. The plans still have to be approved by full council.
Elsewhere in the meeting, councillors heard that its separate local asset backed vehicle, created with Morgan Sindall Investments, has delivered three schemes worth £67m since its creation.