Southampton builds property fund with £60m loan
0Southampton City Council is set to borrow £60m to create a new fund to invest in property.
The council’s cabinet this week agreed the plan, which would see additional property added to the current £100m investment portfolio managed by the authority.
The new fund would use a range of methods including direct and indirect investment plus direct development of sites, to reap an annual revenue return of £1m.
A report approved by councillors said: “The prime purpose of the initiative is to generate income i.e. contributing to a financial ‘future-proofing’ effect, underpinning financial security for the council by providing further income independent of government funding or council tax revenues to fund activities.
“Hence, the investment focus will be on the most appropriate method of delivering income, rather than on location within the city boundary.”
Although a secondary objective, investment could also unlock development within the city, according to the report.
The business plan for the new fund would see the council undertake prudential borrowing of £60m, at an assumed interest rate of 4%, which would be outweighed by the assumed return of 6%.
The scheme would see the cash ploughed into direct property investment, joint ventures, investment funds, listed property shares, risk share development and self development.
The report said: “To generate immediate income, initial investment is proposed into the most liquid categories of delivery methods, namely property funds and shares.
“In this way, capital can be deployed quickly and flexibly. In the event further allocations do not become available for future projects, these investments can be readily realised and redeployed.”
The new vehicle would also be able to benefit from tax efficiencies, access to public sector grants and council land assets.
Council officers warned that bad timing of acquisitions within the property price cycle could provide a financial risk.
But they added: “Historically, property rentals and capital returns have delivered growth and as it is the Council’s intention to be a long term investor it is considered that these risks can be mitigated through a balanced portfolio approach.”
Conservative opposition leader Jeremy Moulton has expressed concerns that investment decisions are being delegated to officers.
The plans still have to be approved by the full council before being adopted.
Photo: (cropped); David Holt, Flickr.
