It is welcome news that a parliamentary watchdog is to examine Shropshire Council’s £52m shopping centre purchase. This is part of a wider look at local council involvement in purchasing commercial property.
The purchase of these shopping centres represents a huge risk to Shropshire Council’s finances. Senior administration members seem to have forgotten it isn’t monopoly money they are playing with. Or indeed their own money. They are risking public money! The risks in the investment clearly outweighed the potential gain. More so when you consider the perilous state of their finances. More so given that more prudent investment strategies would give a better return.
The fact they didn’t get a proper valuation beforehand just compounds their error. The actual valuation instantly wiped nearly £3m off the price paid. A year later the value had plummeted by over 20% wiping another £11m off the price they originally paid. You have to wonder how the valuation looks at the end of 2019/20… All before Coronavius drove a coach and horse through the economy in the last few weeks.
This all brings into question Shropshire Council’s ability and capacity to manage a purchase like this. I seriously doubt there is any of either amongst the members. Expert capacity seems to be lacking generally if the ‘pothole consultant‘ or even the controversial IP&E experiment are taken as examples. The Conservative-run council seems to make a habit of playing fast and loose with public money.
The investment adage ‘buy low, sell high’ seems to have passed the administration by in quite the most spectacular way. Ignoring the warning signs is grossly irresponsible. If the purchase was desirable the timing of the purchase and the purchase price leaves a lot to be desired. I am sure the previous owners are feeling very pleased with themselves.
Shropshire Council completed the purchase of 3 shopping centres, despite sector reports saying that the retail sector would be facing further significant contractions for the foreseeable future. Retailmageddon, Retail Armageddon and Retail Appocolyse as phrases came to prominence in 2017 as retail floor space rapidly contracted in the US in the face of competition from online shopping retailers like Amazon. The signs were there that the phenomenon was also impacting the UK. Toy R Us for example where the US went bust in 2017 with the UK arm going the same way February 2018. Retail Armageddon coming to a store near you | Retail Meltdown of 2017 Traffic figures from 2000-2016 also pointed to a huge increase in vans and small lorries brought about by online shopping.
Landlords were increasingly being exposed in 2017/18 to retailers demanding reduced rents using Company Voluntary Arrangements (CVAs) as leverage. When Shropshire Council purchased the shopping centres they exposed themselves to lower rents that they had little or no control of. A retailer could have declared a CVA, closed a raft of stores and imposed a blanket restructuring of rents on them as a landlord even if Shropshire Council didn’t agree. Shropshire Council was negatively exposed to empty shops or shops that took out CVAs and drastically cut rents. Shropshire Council had a guarantee of rental income for 2 years but that offered scant protection to their exposer. According to Deloitte during 2018 there was a 53% increase in retail CVAs. This prompted landlords to try and defeat the CVAs in the courts…
… visit Cllr David Walker: West Felton Parish Councillor, Whittington Lib Dem Campaigner to read full story.
Main image: Darwin Shopping Centre, Shrewsbury. Photo from Wikimedia Commons