Martin Hone on property rationalisation and being nimble

Martin Hone is Director of Finance at Thurrock Borough Council. He has been with Thurrock for nearly two years and was previously Head of Finance for Southend. He has been dealing with asset management for over a decade.

Room 151: You recently set up a corporate asset team. Can you tell us about that?

MH: Thurrock council previously had a diverse approach to asset management. There was an asset management team within education that looked after schools assets, there was another team in the centre that looked after the corporate assets, housing assets managed in the housing department and so forth.

So there were two drives we had. One was the recognition that this wasn’t an efficient way to manage assets and the other was the need to drive down the cost of managing the assets.

We wanted to see what savings we could make by rationalising assets and so we are in the process of doing that now. We have a much more developed corporate asset management strategy which we introduced about 18 months ago.

Room 151: What kind of savings have you been able to identify?

MH: In terms of the asset management team it has only been a few hundred thousand but that is still worth having. What we have now is the opportunity to look across the entire property portfolio in a way we couldn’t do before and do the classic thing of deciding what we really need, what assets might we think about disposing of to generate capital receipts and what assets are we not making best use of. It’s not complex or groundbreaking but it is a matter of sorting out all the assets that we hold and deciding what to do with them, getting that ok’d at the political level and then going ahead and doing it.

We are doing a lot of transformation around improving services and a lot of that is making sure that services are being provided in decent, built assets which people can get to easily. Over the next couple of years we will be doing a lot of work on that, balancing the overall budget position and making sure we’re improving services.

So there is a three to five year project which we are working on and that we will be putting to politicians a bit later this year for approval.

Room 151: What work has been done so far? A common problem seems to be knowing what properties the council owns.

MH: Well yes, one of the things that we had been criticised for by an external auditor was a lack of a really robust asset register. It wasn’t that we literally didn’t know what we had but some of the values we had against some of our properties were very historical.

A large part of the work that has been going on over the last 18 months is to bring that up to date. I am director of finance and so it’s about what’s on the balance sheet and we list the value of the assets but some were out of date and so there has been that catch up exercise.

It must be admitted too that when we did go through the assets we found some things where it wasn’t quite clear who owned what. That has been further complicated by the winding up of Thurrock Thames Gateway Development Corporation which has been operating in the borough for some years now. Being a quango they came to an end on March 31 and their assets have transferred to our balance sheet so there has been work there. That work continues.

Room 151: Can you put a percentage figure on how much property you might be able to sell off?

MH: Not yet no because we’re still working up the business plan so haven’t got to that stage. We’ve just had the May elections and can’t do anything until we can sit down with the new administration because any disposal can be contentious and we need to make sure we have the political support for it.

We have got targets within the financial plans though. We have to generate about £10m in capital receipts from sales over the next three years. We don’t know which assets we’ll be disposing of and that figure is kind of modest, but we need it to fund other infrastructure investment across the council.

Room 151: Do you have a valuation for the entire property portfolio and if so how did you arrive at that?

MH: We have been doing work with GVA Grimley and they got to an outline valuation of £75m, from which we will try and find the £10m of assets to dispose of. We recognise that there are some gaps in the number. We want to get the agreement from officers and cabinet by July and as we firm up each planned change in the way we use our assets we’ll be going back to politicians to check and confirm. With the property market as it is, if we say things today we know they’ll be wrong in a year’s time so it’s going forward a little step at a time.

Room 151: Are you able to rent properties out?

MH: Yes, we have a commercial property portfolio and own some quite surprising assets. We own quite a few pubs, it’s a legacy from when they built housing estates and tended to build pubs on them.

We own a farm which we rent out, we have quite a few industrial units, lorry parks. It’s quite an active commercial property portfolio but we have a feeling that we haven’t maximised the potential of that over the past years because we haven’t looked at it as a unified collection of assets, so we are working on that.

We are working with our partners Europa, to go through all the leases – we have about 200 –and make sure that they are all up to date and we’re getting the right levels of rent out of people.

Room 151: Who are Europa?

MH: Well we have a relationship with a company called Vertex who provide back office admin, they have subbed out some work to Europa so they do all the day to day work on our leases and things like that. Where we have a leaseholder who runs a pub on a housing estate Europa are the ones who go round and collect the rent and make sure that everyone is happy, that we are treating them properly as a landlord.

We recognise that there is some improvement to make in the way we work with our commercial tenants so there is a big piece of work going on to improve that and also to look at how we can make more money.

Room 151: Is it common for councils to own pubs?

MH: In the 60s and 70s it was quite common to put a parade of shops at the bottom of a tower block with a cafe and and a public house. It is more the new town type councils that have a lot of assets like that. Green and leafy boroughs might not have such a portfolio.

Room 151:  Are you looking at sharing space with other organisations?

MH: We’re very keen on that. At the moment we share our civic building with Vertex who I mentioned a moment ago and who do a lot of work with us.

We are also making space for some people to come over from the Primary Care Trust to do some health work. We have social workers dealing with adults with physical and mental health needs, they work for the councils but they work very closely with people from the NHS so there is logic to them being together in the same space.

When you look at the idea of delivering services more locally too you’re happy to see what might work better if you put it together. You might put housing services or library services together with a GP surgery and a charity. We wouldn’t rule things out but it’s horses for courses, you have to see what would work. Certainly anything that involves co-location, provided it is going to be good for the community, we’d definitely be interested.

Room 151: Who has the ultimate sign off when it comes to disposing of assets?

MH: It is dictated by the constitution, anything below £500,000 is agreed by the leader of the council with agreement from myself and the head of legal services. Anything more has to be agreed by cabinet. I have to take a paper to the council saying ‘we’re proposing to sell’, get their permission to do that, then anything that comes back we tell cabinet we’ve had an offer, can you approve it.

It’s not the kind of decision we make lightly and there’s more consultation that goes on, but that’s the formal process. You have to bear in mind that cabinet only meets eight times a year, sometimes you have to be a bit more nimble especially in the property market, if an offer comes in you may need to move quickly and that gives that freedom. Some authorities are a bit more generous in that, some are a bit more controlling.

Room 151: How is it disposing of assets in the current market?

MH: It is difficult because it’s a falling market. There are two things there: one is every time we get an estimate for what we might get for a disposal we get closer to actually selling something and we find that it is not as good as we thought it was going to be; secondly it’s getting people who are interested in buying, because why would you buy now when you know if you hold off for three months, six months, you’ll get it cheaper? That has been a problem. The money we get from selling assets has dried up significantly compared to three or four years ago.

So although we have got our asset strategy together and all in one place this is a particularly challenging time to do sales so we’re trying to be realistic about what we can do.

We need to do it. One of the things about the public sector is that you just need to keep going. We need to do things, build a new school, repair roads, we need to fund that. It’d be nice to get big capital receipts but we have to act now and try and get the best deal we possibly can.