Surrey Heath Invests In Shops – House of Fraser Closes

Local authorities in the UK have been under intense pressure with falling funding from central government, while Westminster politicians also impose constraints around funding via local council tax.

We’ve seen Northamptonshire pretty much going bust, with managerial incompetence undoubtedly part of the issue there, but East Sussex is also struggling. So some councils have responded by looking to make money from a more aggressive investment strategy, including getting into serious commercial property investment.

On some occasions, that is combined with an objective to support local regeneration. So in the town where I live, Camberley in Surrey, the Surrey Heath council has bought the longest established shopping centre in the town. I knew that; I didn’t know they also bought the property currently occupied by the House of Fraser (HoF) department store.

You can see where this is going I suspect. House of Fraser announced on Friday that they were entering administration, at which point Mike Ashley (founder of Sports Direct) announced he was buying the firm - so goodness knows what will happen next, but I don't hold out much hope for the Camberley store. As The Times reported;

The Camberley store was among those earmarked for closure. Surrey Heath had paid £17.6m for the property only 18 months earlier, following its £86m purchase of Camberley’s main shopping centre, The Mall (since renamed The Square). House of Fraser’s imminent departure left Surrey Heath staring at a loss of rental income and a destruction of the property’s investment value.

So the £17.6m paid for the freehold suddenly looks like a lot of money for what is potentially a huge, empty and unattractive 1960s building. The closure also spells problems for the overall shopping centre; we used to have two department stores (plus no less than 5  shops that sold CDs, my main shopping area of interest)! But the HMV, the Virgin Music and the Bentall’s are all long since gone, and frankly without HoF there is little to make Camberley a shopping destination. A few miles up the road Bracknell has a very swanky new centre (The Lexicon), with some rather upmarket shops too …

The Surrey Heath CEO Karen Whelan is putting a brave face on matters of course, saying that at least now they own the HoF freehold, they can do something with it that makes sense for the town and taxpayers. But that doesn’t change the fact that she could have bought it for a lot less now – and would then have had those options for a lot less outlay. And confusing two objectives when it comes to an investment is often an issue; is this purchase aimed at making money, or supporting the town – and if it is the latter, how do you assess value?

Councils don’t have a great track record when it comes to interesting investments either. Remember when the Icelandic banks went under and many councils who were invested in high-interest products from those banks lost money? A good friend who was a council CFO always had that at the top of his CV – “I didn’t invest in Iceland”!  (You will notice that Wigan isn’t on this list). Then there were the huge derivative “losses” at Hammersmith and Fulham in the early '90s - luckily a House of Lords judgement let them off the hook!

There are two other concerns here. Firstly, the potential for corruption of various types will increase if councils are going to get involved in these transactions. Any Private Eye reader will perceive that local government is the hotbed of public sector corruption in the UK, with several stories every fortnight about dodgy deals, conflicts of interest, or lack of proper procurement process.

And secondly, I don’t have a huge amount of faith in the ability of some councils to manage the professional services costs around property deals – the agents, lawyers, consultants. Has Surrey Heath got an experienced professional services category manager in place?

So we’ll see what our next council tax bill says; I’m looking out for the “House of Fraser surcharge”.

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  1. Mr Grumpy:

    Lots of Local Government Bodies are embarking on this route. IIRC Mole Valley DC were investing in a Mall up north! The Public Sector as you say not a great track record buying property. I always recall when an NHS Trust in the south east bought a building as part of a redevelopment scheme and end up paying in excess of £4M over the top for it! Simply the Public Sector doesn’t have the necessary skills or experience in estate portfolio management. More pain to come from this I’m afraid.

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