Portsmouth eyes borrowing boost to buy office development
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Portsmouth City Council is set to tweak its treasury management rules to borrow an additional £70m towards the purchase of the city’s main office park. However, the figure is only a fraction of the purchase price.
A cabinet meeting on Monday is being urged to support the extension of the council’s authorised borrowing limit from £737m to £807m as part of its plan to buy the Lakeside North Harbour Business Park.
It is expected that the deal could reap the authority an overall financial return of up to £22m over 35 years.
Papers produced ahead of the meetings describe the potential purchase of the 48.5ha business park, around three miles north of Portsmouth city centre, as a “unique” opportunity to take control of “one of the most strategically important sites in the city”.
Last year the city spent £9m buying an office block in Manchester.
The papers stress that the purchase price of Lakeside North Harbour – which has almost 55,000m2 of office space, a 153-bedroom hotel, a Porsche dealership and 3.5ha development land – is “substantially in excess of £100m”, but the exact price is subject to a non-disclosure agreement.
Lakeside North Harbour was originally developed by computing giant IBM in the 1970s, but sold to property firm Highcross in 2005.
IBM still has a base at the campus, which the council said was occupied on a lease-back basis.
Monday’s meetings are being told that additional borrowing of the level required to buy Lakeside North Harbour was not envisaged when the current authorised borrowing limit of £737m was set as part of the council’s treasury management policy in March.
Additionally, the advice to councillors suggests temporarily increasing the council’s current limit for investing in money-market funds from £80m to £104m until the business park acquisition is completed or a decision not to proceed is taken.
It said the funds offered security and same-day access and were “very useful for holding cash that could be required immediately”.
Chris Ward, the city council’s director of finance and information technology – and its section 151 officer – said the primary aim of buying the business park was to support the authority’s regeneration aspirations and to help shape the city’s future development.
But he said the purchase had to be conditional on the investment “generating a reasonable financial return” that was sufficient to guard against a range of financial risks that could arise over the detailed 35-year financial cash-flow model the council was using to assess the opportunity.
“At this stage of due diligence, it is expected that the acquisition of Lakeside North Harbour will generate an overall financial return of £22m in cash terms over the 35-year period after taking account of all income received less all maintenance and borrowing costs,” he said.
“In today’s value, after discounting the effects of inflation, the overall financial return is estimated to be £14m.”
The report to Monday’s cabinet and full council meetings said that Lakeside North Harbour currently had an occupancy rate of 94% and that the £22m cash return projected would reduce to £18m if the cost of repairs was 5% higher than envisaged.
It said that the cash return would drop to £12m if occupancy was 90% and to £1m if occupancy was 85%.
But it noted that higher occupancy rates than the 94% “base case” occupancy, higher than 1% growth in occupational rents, increased lifespan for the buildings – or “radical redevelopment” could result in more positive returns.
The report said Portsmouth could complete the acquisition of Lakeside North Harbour before the end of this month if the borrowing changes were supported and authority to proceed with the purchase was delegated to s151 officer Ward and director of regeneration Tristan Samuels.
That authority would be subject to the support of the city solicitor and council leader Gerald Vernon-Jackson.
A full council meeting later on Monday is scheduled to endorse the approval.
