Tooley Street Purchase

[richard tudor]

Now that Southwark Council has agreed to purchase the above building perhaps James Barber could inform us how this is to be funded? FOR A COST OF ?170 MILLION POUNDS

Will Services be cut? Will other charges go up?

Whilst Southwark has agreed to purchase this building costs will be involved to maintain the building that is now funded by the freeholder.

These figures must be known or it would not have been possible to make an offer. There again its.......

Can you supply without referring us to a link

[Marmora Man]

Whilst I am no great fan of this council - usually the purchase of a freehold to replace a 25 year lease is a good long term bet and will save the council and council tax payers money.

It all depends upon how, exactly, the purchase price was funded - but given that the council probably had capital reserves that weren't / aren't earning much in the way of interest "investing" ?170m to save annual rent of circa ?2m is not a bad use of the money. Plus property in the vicinity of London Bridge and the Shard is likely to rise in value giving a balance sheet advantage too.

[ed_pete]

According to the Council Leader, Peter John, the deal will save approximately ?1.5m p.a.

Whether or not you choose to believe that of course is entirely up to you.

IMO, this is a topic more suited to the Lounge as it's not specific to East Dulwich but the borough as a whole.

Anyway, from the Southwark website:

As part of its Modernisation Programme, the Council moved in to the building at 160 Tooley Street, near London Bridge, as a tenant in 2009 after signing a 25-year lease in June 2008.

The building was not available for sale at the time and the lease was subject to 'upward only' rent reviews every five years.

At the time, the move allowed the Council to make substantial savings as old buildings, which were very expensive to maintain, were sold off.

Originally used only as an administrative building, Tooley Street has been increasingly used for public and committee meetings, including Cabinet and Council Assembly.

As soon as 160 Tooley Street was unexpectedly put up for sale by its owners in November 2012, Southwark Council moved quickly to seize this one in a lifetime opportunity to invest in the borough's future.

Now that the sale has gone through, the council will no longer have to pay rent, which would have undoubtedly gone up in future years, and is therefore expected to make savings of at least ?68m over the next 20 years.

There will be an initial saving of a minimum of ?1.5m in 2013/14 and subsequent years as a result of the purchase.

There are also now plans to further develop the building even more as a community asset for everyone in the borough. One of the options being explored is to establish better use of the building at weekends and evenings.

Additionally, the purchase will allow the council to better adapt to the changing economic environment and occupy the building more efficiently by having the opportunity to sub-let which is penalised under the current lease.

Owning this landmark property in the heart of London, just a few minutes walk from the Shard, also means that future generations will own a substantial asset in one of the most exciting districts around London Bridge Quarter, which is expected to see values substantially increase year on year.

Cllr Peter John, Leader of the Council, said: "This council has pledged to spend every penny carefully and so this purchase was the right thing to do on behalf of the people of Southwark. We paid ?7.7m each year in rent on our council headquarters and this figure would only have increased through rent reviews. Now we will have at least ?1.5m saved each year to spend on protecting services instead of on rent.

"The decision of the owners of the building to sell presented the council with a unique opportunity. The choice we had was the same as someone renting their home being offered the opportunity to buy it for a mortgage that costs less each month than the rent. The money we will save will go directly in to where local people have told us they want it spent - their front line services.

"Now we have bought the building it will both reduce its annual costs in these difficult financial times and we have gained ownership of an important asset for future generations of the people of the borough. Owning the building also increases the flexibility we have in how we use it, both for the community and in terms of sub letting to other organisations and is a massive boost to Southwark and central London."

[richard tudor]

Lets see if ED benefits from this wonderful piece of spin when residents put forward sensible suggestions.

The decision of the owners of the building to sell presented the council with a unique opportunity. The choice we had was the same as someone renting their home being offered the opportunity to buy it for a mortgage that costs less each month than the rent. The money we will save will go directly in to where local people have told us they want it spent - their front line services.

"Now we have bought the building it will both reduce its annual costs in these difficult financial times and we have gained ownership of an important asset for future generations of the people of the borough. Owning the building also increases the flexibility we have in how we use it, both for the community and in terms of sub letting to other organisations and is a massive boost to Southwark and central London."

costs so far. 4 years rent paid $30.8 million plus other similar buildings rented and fitted out. New Cross for one at vast cost when Tooley Street was deemed too small

[computedshorty]

?

[grabot]

This is interesting. I can't say that I understand commercial property, but in crude terms if the building is bought for ?170m to yield a saving of ?1.5m per year, that represents a multiple of 113. That seems enormous. With stock markets trading at multiples closer to 10, wouldn't it be better for the council to allocate the cash elsewhere?

[Huguenot]

Granite, it seems fairly clear from the quote above that the council are borrowing the money to buy the holding, and the cost of servicing the debt is lower than the cost of the rent.

It's also clear that since the property was abruptly put up for sale, that the council had other potential future costs to consider regarding the new owners.

The building maintenance cost will have been considered as part of the arrangement - freeholders contribute significantly less in commercial property than they do in residential property, and the costs are invariably a subset of existing rental fees.

I'm sure that if you want to see the entire calculation it will be available in due course through the annual report.

In the meantime, why do you waste so much energy slagging off the council for hypothetical scenarios wherein there's no evidence of malpractice?

[grabot]

Sorry, I didn't mean to cause offence. I was genuinely interested in how these things are valued.

[Huguenot]

Ah, no offense taken - you may be right, but there's no evidence that anything untoward is wrong here.

Granite was an auto-correct :))

[richard tudor]

Huguenot Wrote:

-------------------------------------------------------

> Granite, it seems fairly clear from the quote

> above that the council are borrowing the money to

> buy the holding, and the cost of servicing the

> debt is lower than the cost of the rent.

>

> It's also clear that since the property was

> abruptly put up for sale, that the council had

> other potential future costs to consider regarding

> the new owners.

>

> The building maintenance cost will have been

> considered as part of the arrangement -

> freeholders contribute significantly less in

> commercial property than they do in residential

> property, and the costs are invariably a subset of

> existing rental fees.

>

> I'm sure that if you want to see the entire

> calculation it will be available in due course

> through the annual report.

>

> In the meantime, why do you waste so much energy

> slagging off the council for hypothetical

> scenarios wherein there's no evidence of

> malpractice?

I would appreciate seeing the calculations now. The deal has been completed. How much has the council borrowed, at what rate and over what period of time and how has the loan been securitized

Perhaps Cllr Barber could supply these figures.

Or will they be released when people have forgotten the cost?

[Marmora Man]

RT - since comercial property is unlikely to depreciate the council has an asset worth ?170m and is making annual savings and has identifid that it can let further space to generate additional receipts.

All in all - it's probaly a good deal. If it's not the Audit Commission will have words to say.

[richard tudor]

I think you are missing the point. How is is it being financed?

Secondly. if they can let space why have they rented a very expensive building in New Cross.

Can we see the figures.

When the building was rented it was to solve all of Southwarks space problems regarding staff

Again can Cllr Barber produce the figures

Southwark says they are making annual savings show us the long term figures regarding financing etc

What if the audit commission says its a dog. Would you be happy. When the building was rented it was to solve all long term problems.

Remember Southwark does not produce income it taxes its residents. So any loss does not matter. Difference between private and public sector

We are the shareholders show us the accounts now

[Marmora Man]

Don't ask me - ask the council, using FOI if it's that critical. A campaign on EDF is unlikely to change things. Otherwise the annual report will provide details idc. I can't believe the council is as financially illiterate as you appear to assume.

[Huguenot]

Richard Tudor, what do you imagine took place, and what do you think their motivations were?

[grabot]

Once again, trying to get some basic understanding. In recent years commercial property companies have traded on a price to book value below 1, on the assumption that commercial property values will decline. I believe that this is still true, of, for example, British Land. If the share price is lagging some wider market shift in which commercial property is unlikely to depricate, I guess the market is wrong. Looks like a one way bet :-)

[Huguenot]

I'm guessing that it depends whether you're looking at national averages or specific locations, or manufacturing versus services and so on.

Specific locations are also subject to reclassification.

Did you know that the entire global supply of Worcestershire Sauce is made by 40 people?

With that as a reflection on the automation and systemisation of industrial process, I'd be inclined to predict a general downgrading of commercial property.

I look forward through some New York 80's fug to the pleasure of loft living :)

[richard tudor]

For the attention Cllr Barber

Could you provide the figres asked for to allow us to make up our minds on this

[Siduhe]

I can't imagine James Barber monitors all the threads on the EDF. You may have more luck addressing him on the specific thread in the main forum, or making your own FOI request to the Council, setting out exactly what figures you'd like to see? It's a straighforward process and you're more likely to get a result from a direct request to the Council I would have thought.

[Marmora Man]

Huguenot Wrote:

-------------------------------------------------------

Did you know that the entire global supply of Worcestershire Sauce is made by 40 people?

I din't but I know one of the team that makes Worcestershire Sauce, he taught my sons cricket, so I'm acquainted with 2.5% of its entire workforce.

[Huguenot]

And I'll be betting they wielded a Duncan Fearnley. I went to his factory once you know :)

[Jeremy]

I am struggling to understand the objection.

The original post asks "Will Services be cut? Will other charges go up?". Why would this be the case?

If the council have reduced their outgoings, why is that a problem?

What is the council's supposed ulterior motive?

[richard tudor]

Where can you see an objection?

All that is being asked is how it is being funded. With 170 million being paid out it is a valid question.

[Huguenot]

Except that ?170m hasn't been paid out, all that's happened is that paying rent to a landlord has migrated into paying interest to a financial lender at a saving of ?1.5m annually.

Those savings have already been published - what other figures do you want to see?

I would imagine an FOI request will simply be referred to Southwark's annual report. We shouldn't waste local taxpayers' money with frivolous requests.

[Jeremy]

grabot Wrote:

-------------------------------------------------------

> This is interesting. I can't say that I

> understand commercial property, but in crude terms

> if the building is bought for ?170m to yield a

> saving of ?1.5m per year, that represents a

> multiple of 113. That seems enormous. With stock

> markets trading at multiples closer to 10,

> wouldn't it be better for the council to allocate

> the cash elsewhere?

I don't think that's right, the investment multiple is the total money back divided by the total money put in.

But in simpler terms, the approximate yield is 7.7/170 = 4.5% (ignoring costs and maintenance). Sounds like a pretty typical rental yield to me. If you looked at dividend yield in the stock market, I think you'd find that 4.5% was well above average. And surely prime central London property is much lower risk.

I'm sure there's a good chance I'm missing something, but still... not sure really sure why people are questioning the purchase.

[richard tudor]

Exactly interest to a financial lender. What interest rate and for how long and how much was borrowed any arrangements fees if any to fix the loan.

Why should it need a foi request. Cllr Barber should be able to tell us or Eleanor Kelly

Bottles of orange liquid far more interesting