Local Councils Are Now Turning Commercial Property Lender
There's a new lender in town, and it's got deep pockets. The 92K SF Albert Estate, owned by Kinrise, has benefitted from £17.6M of loan funding. And Castlebrooke Investments, owners of the CIS Tower, has borrowed another £60M.
Recently there has been a trend for local authorities to buy commercial property assets, borrowing cheap to buy real estate and use the income to fund their spending needs. Trafford's innovation is to move into debt finance on a large scale.
The two loans, along with two other debt deals amounting to £163M, come from the council's £400M Asset Investment Fund, established in 2017 with an initial £300M of low cost borrowing from the government. Another £100M has since been added by the council.
The move is already providing them with appreciably improved returns, and promises to reduce the risk compared to buying assets since providing debt means that any losses on the property hit the owner first.
The Trafford fund has now made 12 investments, with the 13th (the Albert Estate) funded instead directly from the council's treasury balances, a report to Trafford Council's ruling executive revealed. A total of £287M has been invested so far, the bulk of it in debt deals.
The £60M loan to pay for refurbishment of Castlebrooke Investment's CIS Tower, Miller Street, is the eye-catching deal. The loan is just short of the £66M Castlebrook paid for the 28-storey block in 2017.
Trafford Council has agreed to loan £60M to CIS Tower owner Castlebrooke Investments, to refurbish and refinance the 388K SF building.
"In addition to the capital commitments listed above, the Investment Management Board has also given approval to the Council to provide a debt facility of £17.62M secured against a portfolio of properties in Manchester City Centre, known collectively as Albert Estate. This facility is funded through surplus cash balances and so is a part of the Council’s Treasury Management Strategy, rather than a capital investment," the report said.
There are two other debt deals, which sees Trafford Council lend £61M to a developer for the construction of a new residential development at The Crescent, Salford.
The council also became involved with what looked like a straight-forward joint venture purpose in October 2019 when it acquired the Stretford Mall and the Stamford Quarter, Altrincham, through a joint venture with Bruntwood. This cost £51.42M, divided equally between the two partners. Yet even here there was an element of debt financing. “ As part of the arrangement, the Council has provided a debt facility to Bruntwood for its share of the cost, which will provide a further revenue return to the Council,” the report to councillors said.
The move into the debt market is explained in the report as “compliant with the investment strategy objective of delivering a financial return to support the council’s revenue budget in addition to providing regeneration to the wider Greater Manchester economic area.”