Decision to sell a commercial asset
Uttlesford District Council has approved plans to put its commercial ownership share of Chesterford Research Park up for sale.
Uttlesford District Council met last night to pass a budget for the next financial year, as well as some other important decisions. One of the debates that councillors had was in a confidential private session because the issue at hand was highly commercially sensitive and could not be held in public without prejudicing council taxpayers' money.
Now councillors have had this debate and reached a decision, we are able to make public the main outcome of that decision - that the council is going to put up for sale its 50% ownership share of Chesterford Research Park.
Chesterford Research Park is a highly successful life sciences research park in the Uttlesford district - one of many such centres of scientific excellence home to world-class, cutting-edge businesses based around the city of Cambridge. It is home to a number of high-profile companies such as Astra Zeneca and Charles River and is continuing to thrive, with construction for a new near 60,000 sq ft building which will house up to 16 companies underway, along with a solar farm that will in phase 1 supply electricity to almost half the Park. Planning permission has also been granted for a second similar size building with construction due to start later in 2024.
The park will continue regardless of whether Uttlesford District Council retains its 50% ownership share, or else sells it on to a new commercial owner, without the current businesses being at all affected, or the development of the new buildings slowed down in the slightest.
The council has taken the decision to put its 50% share up for sale simply because of the growth in value of this commercial investment. The proceeds of the sale will help to support the important range of public services provided by the council. Uttlesford, like all councils around the country, has been faced with many years of austerity and faces many more years of government funding cuts and restrictions in the future.
Councillors discussed this possible sale last night in private, as provided for in the law, on grounds of commercial confidentiality. This included discussions of which of the council's portfolio of seven commercial assets it made most sense to consider selling, and also how much various assets might be worth, so as to deliver the best financial benefit for residents. Councillors have a strict legal duty to secure the highest sale price and to get the best value for taxpayers, so the discussions on what is an acceptable sale price obviously could not be discussed in public for potential buyers to know what price the council would accept.
Now that debate has been held and that decision taken, the council is able to put this full explanation into the public domain, not least to put right some ill-informed and at times inaccurate speculation on social media.
We cannot publicly discuss specifics of sale prices, but if and when an acceptable offer is received and the asset sold, that figure will ultimately be put into the public domain once its commercial confidentiality is no longer an issue.
If a sale is ultimately agreed at an acceptable price, the council will (as required by law) spend the proceeds paying off short-term debt. Such a sale would mean that the remaining portfolio of six assets would be worth many millions more than the borrowing outstanding against them, as well as successfully reducing the council's short-term borrowing, and with it, exposure to fluctuating interest rates. After this sale, the council would be in excess of £600,000 a year better off per annum for years to come, which would support the range of vital council services it provides.
Further background information
- The council has over the last seven years assembled a commercial asset portfolio of seven assets, funded in the main by borrowing, and overseen by a cross-party Investment Board, which has included an expert independent member, and has been supported by independent expert external advisors.
- This borrowing of approximately £250m is a combination of long-term borrowing of 30 to 50 years at fixed interest rates for the duration of the loans (both from commercial institutional lenders and from the government's Public Works Loan Board), mid-term borrowing of 5 to 15 years at a fixed term rate from the Public Works Loan Board and also short-term borrowing at rates which change when each such individual borrowing expires (and is therefore subject to shifting interest rates).
- All seven of these commercial assets are a rental asset. For the complete life of the council's ownership of the assets, there has never been a single rent payment default.
- A good financial/investment strategy is one that takes a view into the medium/longer-term, over the life of investments, and measures success accordingly. By this approach, the financial/investment strategy is very successful indeed, in that over the recent years since its inception and its subsequent growth, it has cumulatively made both a substantial net contribution to revenue funds, whilst simultaneously accumulating in asset value, as confirmed by quarterly independent external expert valuations presented to the cross-party Investment Board and available for viewing on the council website.
- The council has in place the full suite of government and CIPFA (Chartered Institute of Public Finance Accountants) required financial arrangements, including making annual provision for MRP (Minimum Revenue Provision), as well as funding to support dilapidations and any non-rental income periods at the future expiration of tenancies and/or any bad debts in rental payments due.
- In accordance with CIPFA guidance and government requirements, councils must annually review commercial asset portfolios, and take decisions based on the facts in hard-headed commercial terms. These proper considerations include the relative return on investment and growth in resale value over its purchase price.
- This asset portfolio has, after servicing the debt on associated loans and making these MRP and other provisions contributed over £14 million since 2019. This money has provided invaluable support to the provision of council services and improved outcomes for local people that would not have been available had this asset portfolio not been so successfully assembled and managed. In addition, it also enabled the council to spend £1m on the Covid business recovery programme, £1m on climate change initiatives and £450,000 on large scale sports grants. Without the commercial assets none of this would have been possible.
- The commercial asset portfolio has been valued on a quarterly basis by industry-leading independent experts and been reported up to the cross-party Investment Board. Every single valuation report has shown the portfolio to have been worth substantially more than the total sums paid for the assets therein. This confirms that the asset portfolio has not only made a profit in revenue terms but has also grown in base value.
- The whole basis of this asset portfolio, dating back to its inception and consistent in its management throughout, has been as a commercial investment for revenue return, with the intention that assets were bought and sold at the right times to benefit the council's financial interests, with investment and disposals driven 100% by hard-headed commercial financial decisions and not by emotional factors.
- The council's 2023-2028 five-year Medium Term Financial Strategy (PDF) [1MB] agreed by full Council in February 2023 included the decision in principle that the council would aim to sell one or more of its assets over the coming year or two (i.e 2023 or 2024) in support of the authority's financial needs in a time of ongoing austerity, and to contribute to the need to close a five year revenue gap estimated at that time as £6.6 million by 2027.
- Consistent with that live strategy agreed by councillors, officers in September 2023 let a commercial contract to industry-leading independent external expert advisors to advise and support the authority (in the first instance, through the Aspire company) through the sale of one or more assets, as agreed in principle in the 2023-28 MTFS. It is important to understand that this £1 million contract is in place, but that the majority of it (other than preliminary works) has not been spent and is only now committed as councillors agreed to sell CRP.
- Suggestions that the council has already spent £1 million on selling any particular commercial asset before councillors had debated and decided to do so is completely and utterly incorrect. The council had let a contract for up to £1 million for this purpose as an enabling measure and to ensure there is no delay in bringing the right independent external expert advisors on board, but most certainly had not either spent or committed that expenditure. If councillors had voted not to market Chesterford Research Park for sale, then this £1 million would simply not be spent. Indeed, if a sale is not ultimately agreed at a mutually acceptable price, then most of these costs will not be incurred either.
- It is in the public domain that councillors on the cross-party Investment Board met on 15 February, in a private session to discuss in confidence a report on potentially selling one or more of these commercial assets. Cabinet, also attended by opposition councillors, met on 20 February, again in a confidential commercial session to consider a similar report considering the outcomes of the Investment Board discussions. As required by the council's constitution, because of the financial scale of this issue, any such decision is above the threshold that can be taken by Cabinet, and so Cabinet has made its own recommendation on this matter to full Council. All 39 councillors had access to the 80-page report on the subject, and all parties on the council were offered further meetings with officers if they had any outstanding questions or concerns. Because of the extreme commercial sensitivity of the matter, all three of those reports and those discussions are covered by para 3 of part 1 of schedule 12A of the Local Government Act 1972.
27 February 2024