Financially challenged Salford Council is set to approve up to £10million for investment in a portfolio of property.
A Treasury Management Strategy report to be voted on at the full meeting of the Council next week asks councillors to "approve the addition of property funds to the list of non-specified investments in the Annual Investment Strategy with an investment limit of £10m or 25% of the total investment portfolio, whichever is the lowest value...".
The report gives the example of the Local Authorities' Property Fund (LAPF) which it is `considering'. The LAPF has a whole range of swanky offices, shops, retail parks and warehouses, including units in the Cambridge Science Park, offices in Threadneedle Street in London and at the Iceni Centre in Warwick. Almost 28% of the Fund's properties are in London, with only 2.9% in the North West.
While the Fund has been performing well, its annual report spells out the risks... "The Fund's units and the revenue from them can fall as well as rise and an investor may not get back the amount originally invested... The performance of the Fund could adversely be affected by a downturn in the property market in terms of capital value or a weakening of rental yields."
The LAPF is run by CCLA Investment Management Limited, an offshoot of the CCLA (Churches, Charities and Local Authorities), originally the Church of England Investment Fund. It currently has 97 local authority investors and the income yield at the end of the last financial year was 4.9%.
The Council report states that "Property funds are likely to realise a considerably higher rate of return than the type of specified and non-specified investments that the City Council currently invests in. Annual returns in excess of 5% would be expected compared to the average of 0.54% which was actually achieved during 2014/15..."
The report also warns that "The higher rate of return on a property fund compared to money market funds is achieved at the expense of liquidity, however, as it would be necessary to invest in a property fund for a period of 5-7 years in order to even out fluctuations in property markets and to minimise the impact of exit fees. The capital sum invested is not guaranteed as the value of the fund may decline as well as rise based on the performance of the property market during the investment period."
That Salford Council has up to £10million to sink into property speculation might raise a few eyebrows amongst those seeing their services cut...
* See also previous Salford Star article: Salford Council spends £thousands at MIPIM property orgy while community events get cuts - click here
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