Star date: 14th March 2014

SALFORD COUNCIL TURNS PROPERTY SPECULATOR AS SERVICES CUT

Salford City Council is gambling millions of pounds of council tax payers' money by signing an eight-year pre-lease on the whole block of a yet to be built office complex on the site of the old Exchange Station opposite Manchester Cathedral.

The Greengate block, called Embankment 101, is the first of two huge black buildings nicknamed The Ugly Sisters, and the Council, we understand, had earmarked around £15million to speculate on the project, a joint venture between Carillion, Ask Real Estate and Tristan Capital Partners.

Full details here…

As Salford Council makes another £25million worth of cuts, mainly to vital services for vulnerable people in the city, it is speculating with millions of pounds of public money on a new horrendous office block in Greengate, called Embankment 101.

The block is the first of two black buildings, nicknamed The Ugly Sisters by contributors to the Skyscraper City website, and the Council had originally, in the words of its 2011-12 accounts, "agreed to underwrite rental income on two office blocks to be built by its development partner Ask Developments".

In 2011, the Salford Star understands that £15million was earmarked to speculate on the building, guaranteeing 50% of the rent on the first block for the first ten years. The decision to gamble with millions of pounds of local taxpayers' money was taken by Salford Council's Cabinet in secret, rushed through as "urgent and not subject to call-in" while the subsequent decision notice was never posted on the Council's website, as is a legal requirement (see previous Salford Star article – click here).

In January this year, however, the terms of the lease were changed – and the Council has now signed an eight-year pre-lease on the whole of the first office block – speculating possibly with an even larger amount of tax payers' money than originally envisaged to "allow the Council's development partner, ASK to secure the development finance needed to deliver the first phase, Building 101".

On the Council decision notice, there was an option not to underwrite 100% of the rents for eight years on the building but this was rejected, because there was a "high risk that the public sector funders for the Greengate public realm would seek a repayment of the grant funding because the project did not deliver the project milestones as set in the Grant Funding Agreements".

In other words, when Salford Council got public money towards building its £13.3million Greengate Square fountain, bridge etc, it guaranteed that the folly would stimulate loads of other buildings, jobs, commerce etc. As anyone walking past the place can see, this hasn't happened – and the Council needs The Ugly Sisters to fulfil its promises.

So, rather than admit failure and have to pay back some of its grant, it's throwing more money at the speculative office development. Some people might argue that the Council's partners in the project, ASK Real Estate, had Mayor Ian Stewart over a barrel. The new deal means that if no company rents out the space, the Council is liable to make up the shortfall…for eight years.

With Salford Council now guaranteeing to pay 100% of the rent on the first Ugly Sister , it's a no-brainer that speculators would come forward to invest. And so they did…

Tristan Capital Partners a `pan-European real estate investment manager' put out a press release stating that a fund it advises - the European Property Investors Special Opportunities 3 (EPISO3) fund - had become the main investor in the £56million project that has featured "an innovative lease arrangement from Salford City Council".

`Innovative' meaning `you underwrite our gamble'. `Special Opportunities' meaning they `can't lose'.

"Salford City Council's vision in providing an innovative 'wrapper lease' has been instrumental in unlocking the potential for this part of Greengate" said Peter Mather of Tristan Capital Partners, presumably with a straight face.

"Salford City Council has played a crucial role in bringing this major investment to the city" added Salford City Mayor Ian Stewart "The development is further evidence that Salford is becoming an extremely attractive city for investors from around the world."

Or should that be `easy touch for investors from around the world'?

* Any shortfalls in rents will be paid for out of the Salford Council revenue budget (from 2018), which is the one that funds services for vulnerable people in the city, amongst other things.

See also previous Salford Star articles...

Salford Mayor opens £13million fountain a day after passing £23m cuts - click here

Salford Council's £100m cuts and £100m prestige spending - click here