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Report to Cabinet
25 June 2014
Proposed Acquisition of 1 Providence Place
West Bromwich
- Summary Statement
1.2The Council's current under lease runs until October 2026. The rent payable on the 75,900 sq ft property by the Council is £1,311,273 in 2014 rising to £1,815,108 in 2025, but is regarded as onerous due to the 3% uplift of the rent per annum. Approximately half the property is occupied by BT (by virtue of 2 sub-underleases from the Council) who pay rent to the Council on a pro rata basis for the space that they occupy within the property. The BT leases run until 2026 but each has a break clause after three and a half years i.e October 2017. It is considered highly likely that BT will vacate their occupation of the property in October 2017, since they have no ongoing requirement for property within Sandwell.
1.3Invista have now put their long head leasehold interest in the property on the market to generate capital for investment; this report proposes that the Council acquires their interest which provides for a merger of the Council's interests in and ownership of the property.
1.4Invista's interest has been valued by DTZ on behalf of the Council at between £20.8million to £21.5million. The acquisition of the head leasehold interest would provide the Council with a modern headquarters facility in the heart of West Bromwich that will meet the Council’s accommodation requirements in future years.
1.5If the Council is successful in acquiring the head leasehold interest in the property, the acquisition will be made using Prudential Borrowing. Initial cost comparators show that the overall cost of ownership is lower using prudential borrowing and that immediate revenue savings can be achieved in the first year following acquisition.
1.6Given the gearing on the existing under lease and the ability of the building to meet the Council’s long term office requirements, the acquisition of the head leasehold interest is concluded to be a more appropriate way forward both from a financial perspective and the Council’s long term security of the building.
1.7Negotiations for the proposed acquisition are still ongoing with Invista and further details will be provided verbally at the Cabinet Meeting.
1.8An Equality Impact Assessment is not necessary at this stage.
Further details are attached for your information.
2.Recommendation
2.1That, subject to appropriate due diligence, the Director - Legal and Governance Services be authorised to acquire the headleasehold interest of 1 Providence Place, West Bromwich on terms and conditions to be agreed by the Area Director – Regeneration in consultation with the Director of Strategic Resources.
2.2That the Director Legal and Governance Services be authorised to enter into or execute under seal if necessary any other related documentation, and to take any other necessary steps, in relation to (or consequent on) the acquisition of the headleasehold interest of 1 Providence Place, West Bromwich on terms and conditions to be agreed by the Area Director Regeneration and Economy in consultation with the Director of Strategic Resources.
2.3In the event that the negotiations for the acquisition of the headleasehold interest of 1 Providence Place West Bromwich are successful , a further report be submitted to include a business case (to ensure that the course of action represents the best interests for the Council), a financial appraisal and the allocation of the necessary resources.
Nick Bubalo
Area Director – Regeneration and Economy
Stuart Kellas
Director - Strategic Resources
Neeraj Sharma
Director - Legal and Governance
Contact Officer
Peter Yeomans
Tel 569 3906
3.Strategic Resource Implications
3.1The proposed acquisition of this property, which will include the associated acquisition costs of Stamp Duty (SDLT), will in the longer term save the Council resources. The current lease arrangements that are in place commit the Council to some £18million in rent up until 2026. Even then there may well be additional costs due to dilapidations that will fall due on the property.
3.2The exact acquisition price has not yet been negotiated, and the Council may be out bid by Investment Funds wising to purchase the interest for a value in excess of that recommended by the Council’s external advice.
4.Legal and Statutory Implications
4.1The power for a local authority to acquire land and property by agreement is contained in Section 120 of the Local Government Act 1972. It allows Councils to acquire by agreement any land whether situated inside or outside their area for the purposes of any of their functions or for the benefit, improvement or development of their area.
4.2The acquisition of the headlease for a significant sum means that it will be essential for the Council to carry out the necessary due diligence exercise to ensure that the property provides value for money.
5Implications for Council’s Scorecard Priorities
5.1Great Place
The regeneration of the Borough is a long term objective of the Council. This property was procured by BT in connection with the services outsourcing project (now at an end) and as a component of the Urban Renaissance that has taken hold in West Bromwich. The proposed acquisition will consolidate the Council interest in West Bromwich and, in the longer term, provide a flagship Head Quarters facility that will meet the Council’s accommodation requirements for the foreseeable future.
5.2Great People
The proposed acquisition will provide BREEAM excellent accommodation for Sandwell employees. The property was constructed in 2011 and has all the requirements of a modern office block. This will be of benefit to the Council employees working within the property.
5.3Great Performance
The financial advantage to the Council starts to materialise in 2017 and in the longer-term there are significant savings to the Council by virtue of the ownership of the flagship Head Quarters property in West Bromwich.
Great Prospects
The proposed acquisition demonstrates the commitment of the Council to the long term regeneration of West Bromwich. The adjacent plot is being developed by the West Bromwich Building Society and the Providence Place development is clearly being developed as the premier office location within the Borough, affording very good access to the National Motorway Network.
6.Background Details
6.1The construction of 1 Providence Place was part of the delivery arrangements required when Transform Sandwell awarded the outsourcing contract. This necessitated the construction of a Regional Business Centre with the Borough boundary. The contract provider, in its fulfilment of that obligation commissioned the construction of the property known as 1 Providence Place. This is a 75,000 sq ft BREEAM excellent Head Quarters facility.
6.2The Council's current underleasehold interest in the property came into effect on 1st April 2014 and runs until 2026. The rent payable by the Council (that was originally negotiated by the Council's predecessor, ) has a 3% uplift per annum and is somewhat onerous since by 2025 the Council will be paying £1.8million per annum for its occupation of the property.
6.3Due to the Council’s ability to borrow money at favourable rates through Prudential Borrowing it has been calculated that if the total acquisition cost is in the region of £23.2 million than this reduces to a Net Present Value of £19.7million. It also delivers the advantage of acquiring a substantial asset that the Council is able to occupy as its premier head quarters facility.
6.4Additionally it is anticipated that this property will become a major component within the office portfolio. The Office Accommodation Strategy has been amended to reflect the importance of this office facility and its significant contribution to be able to deliver services to the residents of Sandwell.
6.5At the moment the former head lessee occupy approximately half the property but have already expressed a desire to reduce the level of this occupation. The company have 2 sub-under leases from the Council that expires in 2025, but it is anticipated that the company will exercise their break clause to exit the property in October 2017.
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