Regeneration and Investment Strategy

The Authority assesses the risk of loss before entering into and whilst holding property investments/property opportunities by carrying out appropriate due diligence checks and implementing mitigation measures in managing risk:

1. The tenants need to be of good financial standing (this is assessed using Dun & Bradstreet credit rating reports and annual accounts). The number of tenants e.g. sole tenant or multi tenanted will be assessed.
2. The property condition such as date of construction and any imminent or significant refurbishment or modernisation requirements (forecast capital expenditure).
3. How the property investment or financial, non specified investment meets the Council’s multiple objectives as set out in the Council’s strategy e.g. Liquidity, renewable energy, economic regeneration, business growth.
4. The lease must meet certain standards, such as being in a regeneration and popular location and have a number of years left on the lease providing a certain and contractually secure rental income stream into the future. Any break clauses will be assessed along with the number of unexpired years, bank guarantees and rent reviews.
5. The location will be within the South Hams District Council’s boundary as set out in the Regeneration and Investment Strategy (apart from renewable energy investment which may have a wider geographic spread). The population of the catchment area, the economic vibrancy and known or anticipated market demand as well as proximity to travel infrastructure and other similar properties will be assessed.
6. Rental income paid by the tenant must exceed the cost of repaying the borrowed money from the Public Works Loan Board (which is itself funded by the Government). The surplus is then an ancillary benefit which supports the Council’s budget position and enables the Council to continue to provide services for local people.
7. The gross and net yield are assessed against the Council’s criteria.
8. The prevailing interest rates for borrowing at the time.
9. Debt proportionality considerations.
10. The life and condition of the property is assessed by a valuer and the borrowing is taken out over the life of the asset. The amount of management and maintenance charges are assessed as well as the ease of in-house management. 10% of all rental income (or an amount as deemed prudent) is put into a Maintenance Management and Risk Mitigation Reserve to cover any longer-term maintenance issues.
11. The potential for property growth in terms of both revenue and capital growth will be assessed.
12. The risks are determined by the property sector e.g. office, retail, industrial, associated with specific properties and the mix of sectors within the Council’s portfolio.
13. Details of acquisition costs e.g. stamp duty land tax, legal costs
14. The documented exit strategy for a purchase/new build.
15. The legal and technical due diligence checks will also identify any specific problems such as anomalies in the title deed, restrictive use classes, indemnities, local competition, construction or refurbishment requirements.
16. The Council engages the use of external advisors to assist in undertaking elements of the due diligence checks such as technical, legal, accounting, property and taxation advice.
17. The Council undertakes sensitivity analysis of the interest repayments on its borrowing requirements as a percentage of its available reserves to ensure there is sufficient coverage in the event that rental income is below that forecasted. This ensures that the Council has the available reserves to enable service delivery to be maintained in the short to medium term, whilst alternative solutions are implemented.