Babergh and Mid Suffolk commercial property firm reports £12m loss in value since 2017
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A council company which has spent nearly £100million buying commercial property outside of the districts has made an on-paper loss of £12m since, latest data shows.
However, council chiefs say it is providing vital income to keep services going and those losses are only book losses which have not left the taxpayer out of pocket.
CIFCO Capital Ltd was set up by Babergh and Mid Suffolk district councils in 2017 to purchase property that would generate an income and in doing so protect council services from being cut.
The firm controversially borrowed £99.2m from the Public Works Loan Board - an avenue now closed off by the Government amid fears that 'debt-for-yield' activities like CIFCO exposed taxpayers to financial risk - which has now been fully invested in a portfolio of properties including retail, office, industrial and warehousing.
The money borrowed is not set to be repaid until 2071.
The investments have included acquisitions in Nottingham, Coventry, Brentwood and Milton Keynes, but bosses say it has a bias towards properties in the East of England.
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Data presented to the two councils' joint scrutiny committee on Monday revealed it has brought in an income of £5.5m since its inception, but accumulated book losses totalling £12.6m.
Company chiefs said they were only paper losses - those which would only be realised if the properties were sold now - and figures showed that £7.1m of those had been from a reduction in value of the portfolio with £5.5m acquisition costs.
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Managing director Emily Atack, who is also assistant director assets and investments at the two councils, said it was "not unexpected - property values do fluctuate over time".
Despite the numbers, the councils' scrutiny committee agreed it was happy with the business plan for the year ahead, which does not propose buying any more property and instead maximising the value of assets it already owns, while the councils' Section 151 officer - the officer whose responsibility it is to report any unlawful financial activity - said she was happy the income level was not a cause for concern.
Peter Gould, Mid Suffolk Conservative cabinet member for assets and investments said: "CIFCO has provided the councils close to £5.5m of net income since its inception in 2017, delivering approximately £2.2m to the councils during the last financial year while facing unprecedented challenges as a consequence of the pandemic, providing the councils with much-needed income at this time.
"CIFCO has been able to withstand these challenges and continues to deliver income to the councils.
"The fact it has been able to do this is a testament to the investment approach and strong management of the CIFCO portfolio since its inception and which has seen rent collection rates above the industry norm."
However, the investment strategy has been resisted by the opposition groups at both councils.
Green group leader at Babergh, Robert Lindsay, raised concerns about nearly £1.5m in debt repayments being deferred over the next three years, which will accumulate a penalty of around £55,000 to be paid to the councils. He said: "We always said this kind of commercial property investment is not a game for public local authorities to get into - we would have been much better off building houses and renting them out.
"This to me is the first real sign of trouble."
To find out more about the company's plan and to see its portfolio, visit the company's website here.