Tooley Street Purchase

[Huguenot]

Maybe because if you have a problem when there is no evidence one exists, that you should have to pay a little bit of the cost in effort to find the answer.

Have you come across vexatious litigation? ;-)

[Jeremy]

So this basically boils down to you not trusting Southwark's finance department to find a loan at a competitive market rate?

If you really feel it's important that you know the terms of the loan, you really would be best off contating the council (or one of the councillors) directly.

[Siduhe]

Well, Richard, with about 5 mins of searching on the Southwark website for the Cabinet minutes where the decision was approved (11 December 2012), I think I have part of answer for you (who the money has been borrowed from) and the Council says it is producing more in the new year....there's lots more info on there too which you may want to look at:

  Quote

23.The financial analysis undertaken sets out a number of options to purchase and

shows comparative costs against the current lease and rent increases. Over the

initial 10 year period, the preferred funding route offers a substantial saving in

revenue costs. This saving is greater if taken over the full 40 year life of the

building.

24. To achieve the best rate of return for both capital and interest it is proposed to

internally borrow from council resources over a 40.5 year term. This follows a

detailed evaluation of a number of options including debt financing (borrowing)

and a mix of both internal and external borrowing.

25. The financing period of 40.5 years is within the life cycle of the building and any

costs incurred for planned maintenance and refurbishment are taken as similar

should the council continue under the terms of the lease.

26. The improved position is driven primarily by the lower costs of principal and

interest repayments on the building when set against the current rent payable,

inflated to take account of future rent reviews. The purchase also provides at the

end of life an asset which is in council ownership and that may be disposed of or

relet at any point. While there is no intention to do so, the location and nature of

the building means that it is a desirable acquisition for potential buyers and this

marketing exercise has helped illustrate the viability of the building.

27. Savings will be included within the policy and resourcing reports to cabinet and

council assembly in the new year.

http://moderngov.southwark.gov.uk/documents/s34146/Open%20Report%20Proposed%20Acquisition%20of%20Freehold%20Interest%20in%20Office%20Accommodation%20160%20Tooley%20Street%20L.pdf

[edited for sense]

[Siduhe]

Here is the webpage with the publicly available docs for this Agenda item:

http://moderngov.southwark.gov.uk/ieListDocuments.aspx?CId=302&MId=4249&Ver=4

[richard tudor]

Many thanks. Makes interesting reading.

[James Barber]

When the original lease was being proposed a colleague and I were not convinced. It was arranged for us to have a long session with the council's finance director and seperately council leader. We felt things would change with the Shard developement/More London settling down, other riverside developments. We were also concerned that with each rent review the lease would get ever more expensive during it's 25 years. Moving Southwark's HQ to Tooley Street rather than supporting the Elephant & Castle regeneration didn't feel ideal.

So it was agreed and contracted that at five years an option for the council to buy the freehold of the property. 2013/14 the marginal rate of borrowing for the council plummets after historic borrowing at eye watering rates are flushed through the books.

So I'm delighted that that option has proven so useful. It means once the council owns the property it saves some money each year. It also means it has more control of its costs not being concerned about rent reviews. And it could choose to move to another cheaper building in the future and make a profit. Hopefully the E&C regeneration will be part of such a move.

[grabot]

OK, so the 7.7 million figure annual rental figure is exclusive to this property? It is all quite confusing. Earlier posts stated that the rental on the building was around 2, from this I implied that the later figure of 1.5 referred to this building and 7.7 referred to [headquarters: plural] this and other buildings. I agree with the above. The effective yield of 4.5% is very good, based on capital expenditure of 170 million to negate rent of 7.7 per annum. I caveat all of this by admitting that the best I ever achieved in maths was a C at GCSE...

[Siduhe]

The other thing I picked up from the docs is that the current lease for Tooley Street is a full repairing lease on the tenant - i.e. the building repair obligation is already entirely with Southwark. So it isn't taking on any new, onerous repairing obligations by becoming freeholder as well.

[Jeremy]

grabot - yep, that's how I read it, 7.7 million pa to rent this particular building. The 1.5 was the annual saving made by purchasing the building instead of renting.

So basically it's cheaper to pay interest to a lender, than it was to pay the landlord's cut. With the added benefit of investing in prime central London property, in an area which is undergoing rapid redevelopment.

[Huguenot]

Not to worry, from what I can tell in richard tudor's total of 47 posts he's got at least 5 other frivolous and possibly vexatious demands for random information outstanding for the council, and at least 2 accusations of deception and/or fraud.

So there's still lots more to keep us running around after him. ;-)

[grabot]

Yeh, happy with the 7.7 million saving. I think that the investment potential is debatable, there seems to be a lot of office space going up in London right now, not sure who's going to take it, and if you believe the hype Europe is moribund: I, incidentally don't subscribe to that idea. Still, with the savings, potential for capital gains is a bonus rather than a necessity.