But they'll still make £4 million
Torbay Council is facing a fall in rental income from its investment properties of up to £1million due to the pandemic.
The authority has bought buildings including office blocks, warehouses and shopping centres across the country to generate a multi-million pound income stream for its services following years of cuts in central government funding.
But it has had to renegotiate rents with some tenants due to businesses being hit by the impact of the pandemic, which has accelerated a shift in shopping to the internet.
The income from investment properties was budgeted at £4.8 million this year, but councillors have been warned that it could drop by up to £1 million, with the shortfall to be made up from money which would have gone into a reserve fund.
Councillors heard that the the £2million pot has been put aside to cover potential losses. In normal years a proportion of rental income would go into the reserve, but that has not happened this year.
Deputy head of finance Sean Cremer told councillors: “Conversations and negotiations have been ongoing with some of the tenants who have been unable to pay their rent.” He said there were agreements in place with the “majority” to cover the unpaid amounts.
Next year the investment properties are estimated to bring in a surplus of £4.6 million, allowing for a variation of £500,000 due to economic uncertainty, councillors have been told.
The partnership of Independents and Liberal Democrat running the council increased the investment fund to £300million after taking control in May 2019.
It was set up to provide income to fund services following years of cuts in central government support during a decade of austerity measures.
But the Government has put a stop to local authorities pursuing the so-called “debt for yield” purchases, funded by borrowing at discount rates.
The council’s overview and scrutiny panel heard at a meeting on Wednesday night that the council had spent £231million of the £300million investment fund. The meeting heard that the £69million left unspent had been removed from future capital spending plans.
A budget report said the investment fund had been closed “and the council will not be conducting any future activity of this nature.”
The Government changed the rules for local authority borrowing from the Public Works Loan Board in March 2020.
In November, councillors were told that the value of its investment in the Wren Park retail centre in Torquay had dropped by almost £10million since 2017. The council paid £21.1million, including purchase costs, but at the end of March 2020 it was valued at £11.5million.
Wren Park, off Browns Bridge Road in Torquay, is next to The Willows retail centre and is occupied by Boots, Outfit and Next. The store chain Home Bargains has been linked to a unit left empty after the closure of Mothercare.
In the 2019/20 financial year the council paid £34.6 million for a food distribution warehouse 150 miles away at Didcot in Oxfordshire, £11.1 million for the Odeon Cinema at Taunton, £1.8 million for the Crown Records building at Exeter, and totals of £6.3 million to build a Travelodge at Chippenham in Wiltshire and £15.2 million for the Amazon warehouse at Exeter,
Earlier investments included office blocks, a pasty factory at Bodmin in Cornwall, a distribution warehouse in Kent, a Tesco store at Ferndown in Dorset, and The Range at Babbacombe in Torquay.
Councils across the country have invested in property to raise income to off-set Government cuts, with £6.6billion spent in the three years to 2020, according to the National Audit Office.
But concerns have been raised about the use of public funds and the exposure of councils to the risk of a property crash. Some of Torbay’s purchases proved controversial, such as the pasty factory in Cornwall, with questions asked about why it was investing outside its area.
The partnership of Liberal Democrats and Independents which took control of the council after elections in 2019 set up a separate £100million Torbay Economic Growth Fund to support regeneration projects. It has used borrowing to invest in schemes including the purchase of Fleet Walk shopping centre in Torquay for £15million.
In a separate deal in early 2020, the council bought the Debenhams building in The Strand, Torquay, to protect the property from becoming derelict if the store closed permanently, which has since been confirmed.