Council To Investigate Shopping Mall Deal That Saw £50M-Plus Value Drop
A local authority plans on conducting an investigation into a deal that saw it buy a town-centre shopping mall that has since dropped in value by more than £50M.
Surrey Heath Borough Council in southeast England bought The Square, a 475K SF centre, in 2016 for £106M. According to an appraisal conducted before the onset of COVID-19, the valuation of the centre has roughly halved, due to store closures and the weakening of the retail environment.
At a meeting last month, Liberal Democrat Councillor Sashi Mylvaganam tabled a motion calling for an independent inquiry into the circumstances behind the deal. There was no vote by council members on whether there should be an independent inquiry, but the council’s Performance and Finance Scrutiny Committee, which Mylvaganam chairs, will undertake its own investigation into the deal.
The investigation highlights the scrutiny being placed on property deals undertaken by local authorities, and how councils are grappling with the legacy of retail deals that have seen values and income drop sharply in recent years.
Mylvaganam said at the meeting the council had “overpaid on behalf of the taxpayers” and that he was “not completely confident internal processes were followed,” Getsurrey reported.
Like many local authorities, Surrey Heath bought its town centre to try to regenerate the area around it, which is becoming more and more run down as retailers depart.
The deal, like many others by councils, was undertaken using money borrowed from the Public Works Loan Board, a Treasury division where councils can borrow to fund capital expenditure. Because so many councils were investing in property using funds from the PWLB, the Treasury recently made it more difficult to access.
Former Surrey Heath chief executive Karen Whelan defended the decision to invest in the shopping centre at a 2018 event hosted by retail asset manager Ellandi.
“By acquiring the freehold interest in many of our town centre sites, Surrey Heath did so as part of a wider regeneration of its town and not as an investment property,” she said in a statement.
“Local authorities have been investing in their towns for years but normally as a lesser partner. The problem with this is you are not in control and can only move as fast as the other investors can move. These then have competing priorities either to other areas or to their shareholders in terms of level of return they are committed to. We wanted to buy [the town centre retail scheme] sooner and we should have forced the private sector to sell it to us so that we could get on with the job. What we know since we have been in control is we have moved far quicker on our major projects than we have ever been able to move.”
At that point, it looked like House of Fraser was going to close its 115K SF department store in The Square, but the plan was subsequently reversed.